ABBREVIATIONS AND ACRONYMS

AGOA African Growth and Opportunity ActAIDS Acquired Immune Deficiency SyndromeBOP Balance of PaymentsBoT Bank of TanzaniaBPM5 Balance of Payments Manual, 5th EditionDFI Development Finance International EAC East African CommunityEBA Everything But ArmsEPZ Export Processing ZoneEU European UnionFAL Foreign Assets and LiabilitiesFDI Foreign Direct InvestmentFPC Foreign Private CapitalGDP Gross Domestic ProductHIV Human Immunodeficiency VirusICSID International Centre for Settlement of Investment DisputesICT Information and Communication TechnologyIFC International Finance CorporationIIP International Investment PositionILO International Labour OrganizationIMF International Monetary FundIPA Investment Promotion AgencyISIC International Standard of Industrial ClassificationMEFMI Macroeconomic and Financial Management Institute of Eastern and

Southern AfricaMIGA Multilateral Investment Guarantee AgencyMW MegawattsNBC National Bank of Commerce Ltd.OCGS Office of Chief Government StatisticianOECD Organization of Economic Cooperation and DevelopmentPBZ People’s Bank of ZanzibarPI Portfolio InvestmentsPPP Public-Private Sector PartnershipPSED Private Sector External DebtRGZ Revolutionary Government of ZanzibarSADC Southern African Development CommunitySMEs Small and Medium EnterprisesTIR01 Tanzania Investment Report of 2001TIR04 Tanzania Investment Report of 2004TPB Tanzania Postal BankTRA Tanzania Revenue AuthorityTTCL Tanzania Telecommunications Company LimitedTVZ Television ZanzibarTZS Tanzanian ShillingUAE United Arab EmiratesUK United KingdomUNCTAD United Nations Conference on Trade and DevelopmentUNDP United Nations Development ProgrammeUNIDO United Nations Industrial Development Organization

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URT United Republic of TanzaniaUSA United States of AmericaUSD United States DollarWAIPA World Association of Investment Promotion AgenciesWTO World Trade OrganizationZAC Zanzibar AIDS CommissionZAFREZA Zanzibar Free Economic Zones AuthorityZFPA Zanzibar Free Port AuthorityZIPA Zanzibar Investment Promotion AgencyZIR04 Zanzibar Investment Report of 2004ZPRP Zanzibar Poverty Reduction PlanZRB Zanzibar Revenue BoardZCT Zanzibar Commission for Tourism

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PREFACE

Foreign Private Capital (FPC) is a vital factor in the long-term economic development ofZanzibar. With its enormous potential to create jobs, raise productivity, enhance exports andtransfer of technology, FPC also plays an important role in the country’s economic progress.Moreover, attraction of FPC has become the central focus of the investment policy indeveloped and developing countries across the world.

Since the Government needs reliable data in its development programmes, ZanzibarInvestment Promotion Agency (ZIPA) is increasingly being obliged to provide information onthe status and performance of the approved projects in particular the FDI component of FPC.Similarly other stakeholders (researchers, investors and development partners) needinvestment data for various purposes. In response to this need and following the positiveresults of the same survey held in Tanzania Mainland, ZIPA collaborated with the Bank ofTanzania and the Office of the Government Chief Statistician to conduct this survey.

The Zanzibar Investment Report of 2004 examines in detail the magnitude of investments interms of quality and quantity and how Zanzibar has attracted FDI in 2000 and 2001and thetrend of Private Capital Flows in general. The report also assesses the policy implications ofFPC on national development.

Since there is no reliable data on the trend of FPC flows to Zanzibar, it is my pleasure and beliefthat the report will considerably cover this analytical gap. In this respect it is expected that allstakeholders will make extensive use of the findings of this survey.

Dr. Hamed R.H. HikmanyDirector GeneralZANZIBAR INVESTMENT PROMOTION AGENCYDecember 2004

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ACKNOWLEDGEMENT

This report, which contains results and findings on the Zanzibar survey on PrivateCapital Flows, was prepared under the supervision of Dr. Hamed R. H. Hikmany(Director General-Zanzibar Investment Promotion Agency - ZIPA), Mr. Babu N. Msami(Branch Director-BOT Zanzibar) and Mr. Mohamed H. Rajab (Chief GovernmentStatistician- Office of Chief Government Statistician). The Technical Team was led byMr. Said M. Chiguma (Bank of Tanzania), Fatma A. Jumbe and Said H. Haji (ZIPA) andcomprised Badru M. Masoud, Maduhu I. Kazi (Bank of Tanzania); Mohamed S.Mohamed, Bihindi N. Khatib, Yusuph I. Ali, Rashid A. Salim, Nasriya M. Nassor andNana R. Mwanjisi (ZIPA); Azizi I. Hassan and Saleh S. Hamad (Zanzibar Free EconomicZones Authority - ZAFREZA) and Amour H. Bakari and Mashavu K. Omar (Office ofChief Government Statistician - OCGS). During data collection exercise, verification andinputting; the technical team was assisted by Haula K. Issa, Rashid A. Salim and SalumM. Salum (ZIPA), Miraji I. Usi (Zanzibar Commission for Tourism) and Maulid S.Kombo (OCGS).

The study would not have been successful without the cooperation of investors acrosssectors for providing information, which formed basis for the analysis and conclusionsmade in the study. In addition, the report benefited from close technical cooperation ofS. Mrutu, F. Rutabanzibwa, Charles Assey, and Zabadiah Kiwelu (Bank of Tanzania,Head Office).

Special gratitude is extended to Dr. Josephat Kweka and Mrs. B. Omari research fellowwith the Economic and Social Research Foundation and consultant with EDEVrespectively for their critical and valuable comments on the final draft that have enrichedthe quality of the final report.

Lastly, sincere appreciation is extended to the Development Finance International (DFI),UK in collaboration with Macroeconomic and Financial Management Institute of Easternand Southern Africa (MEFMI), for providing technical support.

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TABLE OF CONTENTS

ABBREVIATIONS AND ACRONYMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iPREFACE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iiiACKNOWLEDGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ivLIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viiiEXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

CHAPTER ONE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Rationale of the Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3 Objectives of the Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.4 Scope of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.5 Outline of the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

CHAPTER TWO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3MACROECONOMIC PERFORMANCE AND INVESTMENTENVIRONMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1 Economic Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.2 Investment Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.2.1 Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.2.2 Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.2.3 Investment Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.2.4 Legal Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.2.5 Investment Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.2.6 Investment Oriented Forums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

CHAPTER THREE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11METHODOLOGY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.2 Institutional Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.3 Awareness Campaign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.4 Training Workshop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.5 Compilation of Investors’ Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.6 Survey Tools and Techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.6.1 The Questionnaires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.6.2 Administration of the Questionnaires. . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.6.3 Survey Manual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.7 Data Processing and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.7.1 Software Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.7.2 Data Entry and Validation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.7.3 Adherence to International Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

CHAPTER FOUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14FOREIGN PRIVATE INVESTMENTS IN ZANZIBAR. . . . . . . . . . . . . . . . . . . . 144.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.2 Foreign Private Capital - Magnitude and Composition. . . . . . . . . . . . . . . . . . 14

4.2.1 Stock of Foreign Private Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.2.2 Flows of Foreign Private Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

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4.3 Analysis of FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164.3.1 FDI Stock by Mode of Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174.3.2 Flows of FDI by Mode of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184.3.3 Stock of FDI by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184.3.4 Analysis of FDI Flows by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194.3.5 Stock of FDI by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194.3.6 Flow of FDI by Region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204.3.7 Stock of FDI by Country of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204.3.8 Flows of FDI by Country of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224.3.9 Debt to Equity Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4.4 Analysis of Portfolio Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234.4.1 Stock of Portfolio Investments by Sector . . . . . . . . . . . . . . . . . . . . . . . . . 234.4.2 Flows of Portfolio Investments by Sector . . . . . . . . . . . . . . . . . . . . . . . . 23

4.5 Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234.5.1 Stock of Other Foreign Investment by Sector . . . . . . . . . . . . . . . . . . . . . 234.5.2 Flows of Other Foreign Investments by Sector . . . . . . . . . . . . . . . . . . . . 244.5.3 Stock of Other Foreign Investments by Region . . . . . . . . . . . . . . . . . . . . 244.5.4 Flows of Other Foreign Investments by Region . . . . . . . . . . . . . . . . . . . 244.5.5 Stock of Other Foreign Investments by Country of Origin . . . . . . . . . . . 254.5.6 Flows of Other Foreign Investments by Country of Origin . . . . . . . . . . 25

4.6 Income on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264.6.1 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264.6.2 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264.6.3 Rate of Return on Foreign Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

CHAPTER FIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28INVESTORS’ PERCEPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285.2 Overall Perception Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285.3 Analysis of Group Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

5.3.1 Macroeconomic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285.3.2 Financial Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295.3.3 Governance and Political Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

5.4 Labour Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315.5 Telecommunication and Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325.6 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325.7 Other Diverse Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335.8 Other Investors’ Perceptions on Improving Investment Climate. . . . . . . . . . . . 33

5.8.1 Investment Direction in Zanzibar Over the Next Three Years . . . . . . . . . 345.8.2 Sources of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345.8.3 Promotion of Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345.8.4 Employment (Staff development plan and gender considerations) . . . . . 355.8.5 Sourcing of Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355.8.6 Other Government Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

CHAPTER SIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36MAIN FINDINGS AND POLICY IMPLICATIONS. . . . . . . . . . . . . . . . . . . . . . . 366.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366.2 Foreign Direct Investment (FDI) in Zanzibar . . . . . . . . . . . . . . . . . . . . . . . . . . 36

6.2.1 Magnitude of FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366.2.2 FDI by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

6.2.3 FDI by Country of Origin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366.2.4 FDI by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376.2.5 FDI by Mode of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376.2.6 Rate of Returns on Foreign Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

6.3 Investors’ Perceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376.3.1 Macroeconomic and Financial Policies . . . . . . . . . . . . . . . . . . . . . . . . . . 376.3.2 Political and Governance Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376.3.3 Labour Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

6.4 Other Corporate Social Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

CHAPTER SEVEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39ASSESSMENT OF THE SURVEY AND THE WAY FORWARD . . . . . . . . . . . . 397.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397.2 Assessment of the Results in Relation to the Objectives. . . . . . . . . . . . . . . . . . 397.3 Identified gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407.4 Lessons Learnt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407.5 The Way Forward. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42APPENDIX 1 CONCEPTS AND DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 43APPENDIX 2 STATISTICAL TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47APPENDIX 3 METHOD FOR CALCULATING WEIGHTED

AVERAGE FOR INVESTORS’ PERCEPTION . . . . . . . . . . . . 50APPENDIX 4 QUESTIONNAIRES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

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LIST OF TABLES

TABLE 2.1A SELECTED MACRO ECONOMIC INDICATORS 1998 - 2002 . . . . .4

TABLE 2.1B CLOVE EXPORT 1998 – 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

TABLE 3.6.2. DISTRIBUTION OF QUESTIONNAIRES IN ZANZIBAR, 2000 AND2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

TABLE 4.2.1.1 STOCK OF FOREIGN PRIVATE CAPITAL IN ZANZIBAR, 2000 AND2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

TABLE 4.2.2.2 FLOWS OF FOREIGN PRIVATE CAPITAL IN ZANZIBAR, 2000AND 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

TABLE 4.3.1.1 STOCK OF FDI BY MODE OF FINANCING, 2000 AND 2001 . . . .17

TABLE 4.3.2.1 FLOWS OF FDI BY MODE OF FINANCING, 2000 AND 2001 . . . .18

TABLE 4.3.3.1 STOCK OF FDI BY SECTOR FOR 2000 AND 2001 . . . . . . . . . . . . . .18

TABLE 4.3.4.1 FLOWS OF FDI BY SECTOR, 2000 AND 2001 . . . . . . . . . . . . . . . . .19

TABLE 4.3.5.1 STOCK OF FDI BY REGION, 2000 AND 2001 . . . . . . . . . . . . . . . . . .20

TABLE 4.3.6.1 FLOW OF FDI BY REGION FOR 2000 AND 2001 . . . . . . . . . . . . . . .20

TABLE 4.3.9.1 STOCK RATIOS TABLE 2000 AND 2001 . . . . . . . . . . . . . . . . . . . . . .23

TABLE 4.4.1.1 STOCK OF PORTFOLIO INVESTMENTS BY SECTOR, 2000 AND2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

TABLE 4.4.2.1 FLOWS OF PORTFOLIO INVESTMENTS BY SECTOR, 2000 AND2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

TABLE 4.5.1.1 STOCKS OF OTHER INVESTMENTS BY SECTOR, 2000 AND 200124

TABLE 4.5.2.1 FLOWS OF OTHER INVESTMENTS BY SECTOR, 2000 AND 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

TABLE 4.5.3.1 STOCK OF OTHER INVESTMENTS BY REGION, 2000 AND 200124

TABLE 4.5.5.1 STOCK OF OTHER INVESTMENTS BY COUNTRYOF ORIGIN, 2000 AND 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

TABLE 4.5.6.1 FLOWS OF OTHER INVESTMENTS BY COUNTRYOF ORIGIN, 2000 AND 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

TABLE 4.6.1.1 DIVIDEND PAID-OUT BY SECTOR, 2000 AND 2001 . . . . . . . . . . .26

TABLE 4.6.2.1 INTEREST PAYMENTS BY DEBT TYPE, 2000 AND 2001 . . . . . . .26

TABLE 4.6.3.1 RATE OF RETURN ON FOREIGN EQUITY, 2000 AND 2001 . . . . .27

TABLE 5.8.3 SOURCES OF INFORMATION FOR INVESTORS’ INITIALINVESTMENT DECISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

TABLE 5.8.7 SOURCING OF RAW MATERIALS FROM TANZANIA . . . . . . . . .35

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EXECUTIVE SUMMARY

Rationale

Rapid changes in the world economy witnessed over the past few decades have inducedmany Governments to undertake major policy reforms in order to attract and involve theprivate sector to play a leading role in their economies. The challenges of globalizationhave necessitated reforms in economic and financial management. Such reforms includeremoving direct and indirect government interventions and distorting incentives, andimprovements in corporate governance, which are important elements for efficientoperation of market economy. With these reforms, capital movements have been able tocross borders freely to places where it can yield higher returns.

Consequently, with globalization, the concept of private capital flows has becomecommon in developing countries. Foreign Direct Investment (FDI) has in turn become avital compliment to national development. It adds to the country’s gross capital formationwith such benefits as transfer of technology and managerial expertise, improving thequality of human resources, creating jobs, boosting overall productivity, enhancingcompetitiveness and entrepreneurship as well as increasing knowledge, and access toglobal markets. Thus, FDI contributes towards sustained economic growth over the longterm, which is important for poverty reduction. However, risks associated with FDI flowsdemonstrate the need for proper management and monitoring of private capital flows inorder to maximize the benefits.

Macroeconomic and financial reforms have brought the need for a robust datamanagement system in order to keep track of private capital flows and ascertain theirnature, magnitude, quality, composition, sustainability and overall economic effect. Datacollected in the survey on private capital flows for Zanzibar provides useful informationfor the country’s balance of payments purposes, prudent economic policy making and areuseful tools for promoting and facilitating public-private dialogue on investment matters.

It is against this background that the Government initiated a comprehensive survey onForeign Private Capital Flows for Zanzibar. This initiative has benefited from technicalsupport by DFI of UK in collaboration with MEFMI, and financial support from theGovernment of Denmark and the Bank of Tanzania (BOT). The survey was conductedunder the auspices of Zanzibar Investment Promotion Agency (ZIPA), Office of ChiefGovernment Statistician (OCGS) and BOT.

Objectives

The main objectives of carrying out this survey were to:

• Compile, design and maintain a comprehensive database on private capital flowsso as to provide credible source of information for appropriate macroeconomicpolicy formulation and investment promotion purposes;

• Establish a sustainable institutional framework and capacity in undertaking regularprivate capital flows surveys by involving both private and public sectors; and

• Strengthen and foster public-private dialogue so that they can work togethertowards achieving private sector-led growth.

ix

Findings on Investment Data

Stock of total investment surged in 2001 and FDI dominated foreign private capital stock…

Stock of total investments in Zanzibar surged from USD 159.6 million recorded in 2000to USD 182.9 million at the end of 2001, an increase of 14.6 percent. Foreign DirectInvestments (FDI) dominated the private capital stock both in 2000 and 2001, followedby Other Investments and Portfolio Investments. During 2000 FDI stock amounted toUSD 151.5 million, being 94.9 percent and increased to USD 174.7 million in 2001accounting for 95.5 percent of total foreign investments. Stock of Portfolio Investmentsremained constant at USD 0.3 million for both 2000 and 2001 accounting for only 0.2percent of total stock of foreign investment. The stock of other investments amounted toUSD 7.8 million in 2000 and 2001 and accounted for 4.9 percent and 4.3 percentrespectively of total foreign investments.

…… foreign private capital flows declined in 2001 due to slow-down in FDI.

Private capital inflows decreased by 66.6 percent from USD 6.3 million recorded in 2000to USD 2.1 million in 2001. The decline in capital flows was largely associated withdecline in FDI partially attributed to uncertainty following the 2000 general elections andthe consequent slow down in investment flows in Community, social and personalservices and Transport and communications sectors. FDI was the largest componentamounting to USD 5.7 million (91.0 percent) in 2000 and USD 1.4 million (67.8 percent)in 2001 respectively. The Portfolio equity investment remained constant with a share of0.1 percent of total investments. Other investments increased marginally from USD 0.6million in 2000 to USD 0.7 million in 2001, accounting for 8.9 percent and 32.5 percentof total investments respectively.

Equity forms the dominant component of FDI

The study revealed that equity investment was the dominant component of FDI at the endof 2000 and 2001. Stock of equity amounted to USD 104.4 million at the end of 2000and USD 115.4 million at the end of 2001, being 68.9 percent and 66.0 percent of totalinvestments respectively. The second major source of financing was long-term inter-company loans, which amounted to USD 38.7 million in 2000 and USD 42.8 million in2001 representing 25.6 percent and 24.5 percent of total FDI respectively. Otherfinancing sources are short-term inter-company loans and supplier’s credit, whichcontributed to less than 10.0 percent.

Tourism sub-sector was the largest recipient of foreign private capital...

Distribution of FDI by sector revealed that Wholesale and Retail trade (which includestourism) was the largest single recipient of foreign private capital for both years 2000 and2001 by receiving USD 107.6 million and USD 122.2 million accounting for 71.0percent and 69.9 percent respectively.

…followed by Transport and Manufacturing.

The second largest recipient sector was Transport, storage and communication, with astock of USD 30.7 million by 2000 and USD 29.4 million by 2001, accounting for 20.3percent and 16.8 percent of total investments respectively. Third largest recipient sector

x

was Manufacturing, which received USD 7.5 million in 2000, and USD 16.4 million in2001 accounting for 4.9 percent and 9.4 percent of the total invested stock respectively.

FDI is most concentrated in Urban West region.

FDI by regional distribution revealed that Urban West dominated with a share of 49.2percent of the total FDI for 2001, followed by North Unguja and South Unguja with ashare of 31.3 percent and 18.9 percent respectively. North Pemba and South Pembaregions, each received less than one percent of the total FDI for 2001. This suggests animbalanced regional distribution of FDI. There is a need for the Government to institutepromotional strategies that will offer incentives for disadvantaged regions throughimprovement of basic economic and social infrastructure.

The bulk of FDI is coming from OECD countries, where the UK takes the lead…

FDI stock by country of origin, revealed that most of foreign direct investments inZanzibar originated from Organization for Economic Co-operation and Development(OECD) countries amounting to USD 139.5 million, being 79.8 percent of the total FDIin 2001. Of these investments, United Kingdom dominated the share followed by Italy.This calls for the need to diversify investment by country of source to minimize possiblerisks associated with economic shocks in source countries.

Findings on Investors’ Perceptions

Most investors were optimistic for the future and aim at further expansion.

Analysis of investor perceptions revealed that most of the investors were optimistic thatopportunities exist including financial sector reforms which will avail better financialservices and availability of loans for investments, natural beauty of the isles, conducivetrade and investment policies and potential for tourism industry. Investors were thereforeoptimistic for future expansion. However, investors are looking forward to deliberateimprovement of investment climate, including inter sectoral linkages.

Macroeconomic Factors were well perceived...

Most investors were of the opinion that macroeconomic factors were conducive for theirinvestment in Zanzibar. Regional integration had an outstanding positive effect implyingthat investors were eager and prepared to maximize advantages of regional groupings.Other factors such as macroeconomic policies, monetary policies, trade liberalization,market expansion and inflation were perceived favourably. However, perception on fiscalpolicy deteriorated from a positive effect to a negative one. The Government isembarking on readdressing the fiscal policies to make them more attractive to investors.

…however, respondents feel that financial policies need to be improved…

The performance of financial policies involved the assessment of eight sub factorsnamely absence of credit rating, interest rates, exchange rates, availability of foreignfinance, availability of local finance, banking services, financial sector stability andliberalization of capital account. Out of these, investors rated favourably two sub-factorsnamely financial sector stability and liberalization of capital account. Investors expressedsome concerns on the remaining factors notably high lending rates, possibly due to highrisks resulting from a high rate of default.

xi

…..and they hailed investment facilitation by investment agencies….

Investors had positive perception on the current efforts of investment facilitation done byZanzibar Investment Promotion Agency (ZIPA), Zanzibar Free Economic ZonesAuthority (ZAFREZA), and Zanzibar Free Port Authority (ZFPA). Investors were of theopinion that the Government should address governance issues such as corruption. It isalso recommended for the Government to continue addressing issues of bureaucracy,smuggling, multiple licenses and tax collection inefficiency.

…but, labour factors including HIV/AIDS pandemic were a constraint to investors.

Respondents showed their concerns that labour factors such as labour legislation; workethics, HIV/AIDS, and inadequate skilled manpower were undermining efficiency intheir operations. Most of these factors have significantly improved during the currentperiod due to concerted efforts by the Government that focused on social-economicdevelopment as per Vision 2020. Furthermore, the Government is taking measures tocombat HIV/AIDS including establishment of Zanzibar AIDS Commission (ZAC).

Utilities and Communication were poorly rated but have shown some improvement.

Investors noted that the quality of utilities and telecommunication needed to beimproved. Telecommunication and water tariffs were perceived as being very high.Measures taken by the Government to rectify the situation included reducing taxes oninformation and telecommunication imports to facilitate access and maximize advantageof Information and Communication Technology (ICT) in economic development.

Infrastructure had a positive effect to investing

On average, infrastructure was rated favourably. In the views of investors, air and seatransportation were positively rated. However, major concerns were on inland transportparticularly rural and feeder roads.

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1.1 Background

Since 1980s, the world has witnessedrapid and widespread initiatives bygovernments to involve the privatesector in the economy. Globalizationhas necessitated trade liberalization,that enhanced the growth of tradeamong nations. In addition,globalization process culminated intoan urge for capital and expertise to meethuge and growing demands ofcontemporary economic activities. Assuch, the past two decades haveevidenced a remarkable increase in theflows of Foreign Direct Investment(FDI) in the world economy. Thedriving forces behind an upsurge in FDIinclude general decline in the tradebarriers, increased trade liberalizationover the past 20 years, global politicaland economic reforms and increasedinterdependence and linkages acrossdifferent firms and countries.

According to UNCTAD WorldInvestment Report (2003), global FDIinflows declined in 2002 for the secondconsecutive year, falling by 20.0percent to USD 651.0 billion from USD813.75 billion in 2001, the lowest levelsince 1998. Flows declined in 108economies out of 195 economies. Themain factors behind the decline wereslow economic growth in most parts ofthe world and dim prospects forrecovery in the short-term. Alsoimportant were falling stock marketvaluations, lower corporateprofitability, slow down in the pace ofcorporate restructuring in someindustries and the dwindling down ofprivatization in some countries. Most ofFDI inflows were concentrated onprimary sectors such as oil andpetroleum. However, FDI inflows intoservice industries (like banking and

finance, and transport) have alsobecome of paramount importance in thepast two years.

Africa’s FDI inflows declined to USD11.0 billion in 2002 after a surge toUSD 19.0 billion in 2001, mainly fromtwo cross- border mergers andacquisitions. As a result, the region’sshare in global FDI inflows fell from2.3 percent in 2001 to 1.7 percent in2002, highlighting the small volume ofFDI flows to the region. This indicatesthat the continents overall significancein the global system is remarkably low.Many African countries marginallysustained or increased their FDI inflowsin 2002. Inflows to the region remainedhighly concentrated, with Algeria,Angola, Chad, Nigeria and Tunisiaaccounting for half of the total inflows.The distribution across sectors andindustries remained largely unchanged.However, World Investment Report(2004) indicates that in 2003, FDIinflows to Africa grew by 28 percent.This calls for future research toestablish whether Zanzibar is amongthose countries benefiting from therecent surge in investment to the regionas indicated.

Zanzibar has been undertaking majoreconomic reforms since mid 1980’s,and has put in place long-termdevelopment plans including theZanzibar Vision 2020 and the ZanzibarPoverty Reduction Plan (ZPRP). Theseplans encompass economic strategiesfor reviving the economy and reductionin the level of poverty. In addition, theeconomy has been remarkablyliberalized. Among the initiatives usedto promote FDI for Zanzibar includeconducive macroeconomicenvironment - such as low and stableinflation, low fiscal deficit, trade andexchange liberalization, steady GDP

CHAPTER ONE

INTRODUCTION

1

growth, and maintenance of peace andpolitical stability. Consequently,Zanzibar has witnessed increasedinflow of FDI in the past decades.

1.2 Rationale of the Survey

It is imperative for any country tocomprehend the magnitude, quality andtypes of foreign capital for properpolicy formulation and investmentpromotion. Lessons gathered fromSouth East Asia on financial crisis in1990s have provided a clear indicationon the need to determine volume,identify type and nature of foreigncapital inflows in an economy.

Since liberalization of financial sector,it has been difficult to compile vitalstatistics on private capital flows.Availability of foreign capital statisticsenables the host country to put in placea mechanism of containing thevulnerable shocks that may be causedby internal or external forces. Thesurvey avails vital information onforeign private investments such asmagnitude, type, source, sectoralallocation and distribution across thecountry which are vital inputs for policymaking.

Since the Zanzibar Revolution in 1964and the subsequent economic reformsin early 1980s, there has been nocomprehensive attempt to evaluate theflow and stock of foreign capital inZanzibar. The survey therefore isintended to provide reasonableestimates of foreign private investmentsin the economy.

1.3 Objectives of the Survey

The Zanzibar survey is an extension ofthe one carried in Tanzania Mainland in2001, which did not include Zanzibar.The main objectives of carrying out thissurvey were to:

• Compile, design and maintain acomprehensive database onprivate capital flows;

• Establish a sustainableinstitutional framework andcapacity in undertaking regularprivate capital flows surveys byinvolving both private and publicsectors;

• Provide information forappropriate macroeconomicpolicy formulation andinvestment promotion purposes.

• Strengthen and foster public-private dialogue so that they canwork together towards achievingprivate sector-led growth.

1.4 Scope of the Study

The coverage of the survey include allfive regions in the Islands, which are,three from Unguja and two fromPemba, all major sectors of theeconomy and all foreign and localcompanies with foreign assets andliabilities.

1.5 Outline of the Report

The report is organized into sixchapters. Chapter two, reviewsmacroeconomic performance andinvestment environment, while Chapterthree focuses on the Methodology.Chapters four and five describequantitative and perception results ofthe study respectively. Chapter sixsummarizes major findings and theirpolicy implications and finally, anassessment of the survey and the wayforward are presented in chapter seven.

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2.1 Economic Overview1

The economy of Zanzibar madesignificant improvement in 2002 byrecording a GDP growth rate of 5.6percent compared to 4.0 percent in 2001and 3.0 during 2000 due to soundimplementation of economic reforms.Nevertheless, the economy is stillhighly dependent on agriculture, mainlyproduction and exports of cloves.However, the share of agriculturalsector in the overall output has beensteadily declining from 41.0 percent in1995 to around 38.2 percent in 1999and to a record low of 34.0 percent in2002. The latter has been attributed toincreased share of other economicsectors particularly tourism. Despite thedecline, over 80 percent of thepopulation depend on agriculture fortheir livelihood.

The Wholesale and retail trade, cateringand accommodation services weredominated by tourism services. Theshare of this sector in GDP hasgradually increased from 19.8 percentin 1995 to around 21.0 percent in 1999before declining slightly to 20.3 percent

in 2002. The increase of share inWholesale and retail trade sector waslargely attributed to increase in earningsfrom tourism services. Tourismearnings increased from TZS 1,905.1million in 1998/99 to TZS 3,882.5million in 1999/2000 but declined toTZS 3,813.9 million in 2000/2001before it improved again to TZS 4,471.1million during 2001/2002 (Chart 2.1)

Contribution of all other sectors to theeconomy is less than 10.0 percent each.The per capita income is about USD250, similar to that of the TanzaniaMainland. The rate of inflation declinedfrom 14.1 percent in 1998 to 5.2 percentin 2002 before rising to 9.0 percent in2003. The level of unemployment isestimated at around 17.0 percent.

Zanzibar imports (including fromTanzania Mainland) about 80.0 percentof her basic requirements. Nevertheless,implementation of sound monetary andfiscal policies for Tanzania hasstabilized Zanzibar’s inflation rate to asingle digit since 1999 (Table 2.1a). Onthe export side, Zanzibar has a narrowbasket constituting of few commodities

CHAPTER TWO

MACROECONOMIC PERFORMANCE AND INVESTMENTENVIRONMENT

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1,905.14

3,882.46

3,813.93

4,471.11

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

5,000. 00

1998/1999 1999/2000 2000/2001 2001/2002

Chart 2.1 Tourism Revenue Trends (TZS Mill.), 1998/1999 - 2001/2002

Source: Zanzibar Revenue Board (ZRB)

1 Analysis is based on 1991 prices

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and because import values are higher,Zanzibar has persistently recorded anegative trade balance.

Cloves and clove products dominate theagriculture sector, which accounts formore than 70.0 percent of exportearnings and employs more than 60.0percent of the labour force. Howeverthe dependence on clove exports iscurrently not very reliable due tofluctuating trend of both exportvolumes and unit price. Clove exportvalue recorded in 1999 was USD 19.9million from USD 0.4 million recordedin 1998, before it declined to USD 10.0million in 2000 and slightly improvedto USD 12.3 million in 2001. It declinedagain to USD 5.4 million in 2002(Table 2.1b). Clove export unit pricehas shown fluctuating trend dependingon the world market prices. The highestprices were recorded in 2001 at USD4,989.3 per ton and in 2002 at USD4,415.1 per ton. The least price wasrecorded during 1998 with unit price ofUSD 1,288.5 per ton (Table 2.1b).

Other cash crops include copra,seaweed, spices, fish products and somevegetables. Fishing is also an important

economic activity in Zanzibar employsmore than 25.0 percent of the workingpopulation especially those living nearthe coastal areas of the islands.Livestock keeping is also of subsistencelevel based on mostly local methods ofbreeding. The sub-sector constitutes anaverage of 10.0 percent of GDP. Theproduction is low which necessitatesthe importation of cattle, eggs andchicken from Tanzania Mainland. Inrecent years seaweed has become a cashcrop supplementing cloves.

Hotels and restaurants sub-sector is thesecond most important sector in theeconomy after clove. Zanzibar is well setto attract tourist-oriented projects.Prospects show that, hotels andrestaurants sub-ector will continue to bethe dominant sector in terms of attractingprivate capital flows. This is supportedby survey findings which reveals thatWholesale and retail, trade, catering andaccommodation services sector, which isdominated by tourism services,accounted for 71.0 percent and 69.9

percent of total investments in 2000 and2001 respectively (Table 4.3.3).

Table 2.1a Selected Macro Economic Indicators, 1998 - 2002

Values in USD Million1998 1999 2000 2001 2002

GDP Growth percent 3.8 8.6 3.0 4.0 5.6GDP ( Mill USD) 188.4 212.6 204.8 237.5 240.0Per Capital Income (USD) 205.0 205.0 229.0 223.0 250.0Inflation Rate (p.a) percent 14.1 10.5 6.5 3.5 5.2Fiscal Deficit/GDP 0.1 -0.0 -0.1 -0.1 0.0Fiscal Deficit/GDP (Exc Grants) -0.0 -0.0 -0.0 -0.0 -0.0Export/GDP 0.1 0.1 0.1 0.1 0.0Import/GDP 0.5 0.6 0.5 0.3 0.3FDI Flow*/GDP - - 0.0 0.0 -Exchange Rate (p.a) (TZS/USD) 650.0 745.0 800.0 876.0 967.0Exchange Rate (e.p) (TZS/USD) 697.4 797.3 803.3 916.3 976.3

Source: Office of Chief Government Statistician, *Zanzibar Foreign Private Capital Survey, 2004. p.a - period average., e.p - end of period.

Table 2.1b Clove Export, 1998 – 2002

Values in USD Million1998 1999 2000 2001 2002

Value 0.4 19.9 10.0 12.3 5.4Volume 341.4 6,204.6 2,897.2 2,459.1 1,224.2Unit Price 1,288.5 3,200.3 3,443.9 4,989.3 4,415.1

Note: Volume in TonsSource: Tanzania Revenue Authority (TRA), Customs department.

Zanzibar has small Manufacturingsector. Its share to the overall GDP isabout 6.0 percent. The sector is almoststagnant, growing at a low rate of lessthan 1.0 percent annually. The sector isdominated by the production ofchemical products, food and beverages.Exports of manufactured productscontribute less than 5.0 percent of totalexport earnings. Prospects show thatgrowth of the sector will largely dependon better utilization of ExportProcessing Zones (EPZ). However,manufacturing under EPZ strategies didnot attain the desired achievements duelack of proper infrastructure and limitedcapacity in accessing the markets whichin turn has resulted to limited credibleinvestments in the sector.

Electric power, petroleum andpetroleum products supplemented byfirewood constitute the energy sector inZanzibar. Coal and gas are rarely used.Zanzibar gets 70.0 percent of its electricpower from Tanzania Mainland throughsubmarine cables, while Pemba gets itspower from thermal generated sources.Between 70.0 - 75.0 percent of theelectricity generated is used fordomestic purposes while less than 20.0percent is consumed by industries.

Transport and communications sectorprovides important links in the economyfor socio-economic development.Zanzibar has a total road network ofabout 900.0 kilometers, out of which85.0 percent are tarmac or semi-tarmac.The remaining 15.0 percent of the roadnetwork is rehabilitated annually tomake it passable throughout the year.Zanzibar has a thriving sea transportwhich serves the ports of Zanzibar, Dares Salaam, Pemba, Tanga, andMombasa. The two main airports ofUnguja and Pemba, the newlyrestructured public telecommunicationcompany (TTCL) and four privateowned mobile systems, connectZanzibar to the rest of the world.

2.2 Investment Environment

2.2.1 Investment Policy

The Government of Zanzibar iscommitted to promoting private sectordevelopment as an engine of economicgrowth and means to strengthen thecountry’s investment environment. Toattract FDI, the investment policy hasbeen initiated with the main purpose ofpromoting and facilitating flow of FDI.The policy provides various incentivesto investors supported by institutionaland legal reforms (Box 2.2.1). TheGovernment is planning to merge theexisting three institutions (ZIPA,ZAFREZA and ZFPA) responsible forinvestments with the intention ofhaving a one - stop centre. The relevantinvestment codes will be repealed topave way for the establishment of thenew Investment Promotion Authority(IPA).

The proposed IPA will be the focalpoint for the promotion, coordinationand monitoring of local and foreigninvestments. The authority will also bemandated to oversee theimplementation of the investmentpolicy in Zanzibar. In an endeavour topromote public-private dialogue,several business organizations haveemerged and have full governmentsupport. For instance, ZanzibarNational Chamber of Commerce,Industry and Agriculture (ZNCCIA)links the private sector to theGovernment with a view of promotingthe development of private enterprise.Other private organizations include;Zanzibar Tourism Investors, ExportersAssociation, Zanzibar Small ProducerAssociation, Zanzibar Association ofNGOs, Employers Association,Zanzibar Tour Operators and GuidesAssociation.

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2.2.2 Trade Policy

The Government of Zanzibar hasrecently reviewed her trade policy withthe intention of hastening tradeliberalization, which is important foropening up trade and investment (Box2.2.2). The primary objectives of therevision are to: -• Create conducive environment for

supporting sustainable growth ofthe economy;

• Create an environment that willallow greater private sectorparticipation;

• Contribute directly to the social

development through increasedtax revenues and employment;

• Expand opportunities for allforeign investors and domesticentrepreneurs;

• Encourage Small and MediumScale Enterprises (SMEs) toproduce and export processedproducts with value addedcomponents.

• Make Zanzibar a Free TradeZone;

• Protect Intellectual PropertyRights including patent, trademark and copyright;

• Enhance Fair Trade Practices andConsumer Protection and

• Attract Foreign Direct Investmentto priority areas.

2.2.3 Investment Opportunities

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Box 2.2.2 Trade Policy Strategies

The trade policy seeks to put in place a system needed to achieve the objective of the “Zanzibar Vision 2020”. Theprimary objective of the policy is to create a conducive environment, which will be capable of supporting asustainable growth in the economy in general and the trade sector in particular. The strategies at macro level, thatwould be utilized are: • Strengthening trade liberalization policies: updating laws rules and regulations and procedures, consolidating and

simplifying the functioning of different governmental authorities and taxation regimes• Improving the quality of service rendered to the trading community, increasing the number of skilled and

technically competent staff in trade promotion services and encourage use of ICT• Aiding trade diversification by encouraging and promoting export of products with value added.• Improving infrastructure and facilities at EPZs and free port in Zanzibar• Creating a base of exportable services.• Attracting Foreign Direct Investment to priority areas: Encouraging increased private sector investment in

infrastructural projects including facilities for storage, handling, processing and packaging for export• Utilizing opportunities offered by regional preferential trading agreements and complying with WTO obligations• Liaising on regular basis with stakeholders and establishing effective consultative mechanism; institutions;

assisting in establishing business associations and market research services; building a stronger partnership withother stakeholders

Source: Zanzibar Trade Policy (2004)

Box 2.2.1 Fiscal Incentives

The Zanzibar Government has put in place several tax and non-tax investment incentives to encourage foreign andlocal investors to come and invest in Zanzibar. The incentives include: • Waiver of land rent during construction period. • Exemption from customs and import duties and other similar taxes on capital goods such as machinery,

equipment, raw materials, fuel, vehicles and other goods necessary and exclusively required during constructionperiod.

• Exemption from import duties on imported raw materials for trial operations provided that the quantity of suchmaterials does not exceed eighteen months' supply for one shift production operation.

• Exemption of import duty on the goods for necessary use of the expatriate employees of an approved enterprisefor a six months period commencing from the date of their first arrival in Zanzibar.

• Exemption from all export duties payable on finished export goods of the approved enterprise.• Income-tax exemption for investors who have made a declaration for re-investments at the proposal stage up to

the first three years. • Permission to transfer foreign currency out of Zanzibar at the prevailing official exchange rates for holder of the

Investment Certificate. However this provision has been superseded by the provision provided in the 1991Banking and Finance Act, which allows remittance of funds.

• Consideration of Tax Holiday to approved projects.

Source: Ministry of Finance and Economic Affairs, ZanzibarContact email: zipaznz@zanzinet.com,

The Government of Zanzibar has beenencouraging private investors toconsider taking advantage of the uniqueinvestment opportunities for thedevelopment of her economy. TheGovernment is promoting collectivedialogue with investors on the basis ofequality and mutual benefit for all. TheGovernment is strongly advocatingPublic-Private Sector Partnership(PPP). The PPP strategy creates a forumwhere matters of mutual concern andinterest are professionally andeffectively deliberated. Zanzibar haspotential and resourceful areas ofprivate investments including tourism,spices, agro-industries, marineresources, garment etc.

2.2.3.1 Tourism

Tourism is the second most importantsector after Agriculture in the Zanzibareconomy. Tourism is regarded as newsector and there are efforts to furtherimprove its status to match internationalstandards (Box 2.2.3.1). During 2002,Zanzibar received 87,511 tourists and

earned a total of USD 4.5 million. Thereare currently 173 touristaccommodation establishments inZanzibar, with a total of 3,089 roomsand 6,139 beds2 . The majority of theseestablishments are located in Unguja.Pemba has 8.1 percent of the totalestablishments (with a total of 110rooms and 214 beds).

The majority of tourists come fromEurope (e.g. Italy, France, Germany,Britain and Scandinavian), followed byUSA, Canada, parts of Africa, and thenewly emerging industrial countries ofAsia.3

2.2.3.2 Spices

Zanzibar is also known as “The Islandof Aromatic and Romantic Spices”.This means that Zanzibar is worldrenown for its exotic and varioushomegrown spices, which are mainlyexported to the Gulf States, Far Eastand the European Union. Spices such ascloves, black pepper, cardamom andcinnamon have largely contributed to

the growth of the economy of the

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2 Source: Zanzibar Commission for Tourism

3 Office of the Chief Government Statistician, 2004

Box 2.2.3.1 Quality Tourism

The Government has put emphasis on quality sustainable tourism with far reaching implications for the developmentand promotion of tourism. To attain this goal, the Government encourages investment in international standardtourism products and offers high quality facilities that support and attract visitors who are prepared to pay a premiumprice.Source: Zanzibar Tourism Act (2004)

Box 2.2.3.2 Objectives of Fishing Industry

The Government is striving to promote a sustainable fish production for domestic consumption and export as a wayof diversifying the economy and increasing fisheries contribution to GDP. The Vision 2020’s fishing objectivesinclude:• Efficiency utilization of the existing fishing potential and ensure ecological balance• Promote public awareness on scenic value of marine resources• Establish aquaculture activities• Improve international competitiveness by providing incentives, supportive market research and extension

services to fishermen• Prepare and disseminate a code of fishing practice and processing methods, which allow for health, safety

handling, storage, marketing and environmental concerns• Encourage foreign and domestic investors to establish large scale, deep-sea fishing business and fish processing

factories.

Source: Zanzibar Vision 2020, Zanzibar Poverty Reduction Plan (ZPRP).

Islands. Zanzibar intends to exploitthese potentials through encouragingprivate investment.

2.2.3.3 Agro Industries

Zanzibar is rich in luscious indigenousfruits such as mangoes, paw paws andcoconuts. In addition, Zanzibar hasrubber plantations, special mushroomspecies and sugar. There is greatpotential for the establishment of agro-based industries in the areas ofproduction, processing and canning.

2.2.3.4 Marine Resources

Zanzibar has great potential for thedevelopment of fishing industry, whichcan largely contribute to the growth ofthe country’s GDP. This investmentopportunity has not been fully exploitedand is open for Foreign DirectInvestment. The cluster islands ofZanzibar are surrounded by the IndianOcean waters with ample marineresources including variety of species offish and seafood such as tuna, snappers,groupers, rays, sharks, king fish,barracuda, shrimps, pelagic shrimp,lobsters, prawns, calamari, octopus,other deep water fish as well as seaweed. All these form solid basis for thedevelopment of fish processing industryfor export market.

2.2.3.5 Garment Products

The Government is actively promotingforeign investments in the garments andapparel industries for export market.The market for garment products isassured within East Africa, SADC andAfrican Growth and Opportunity Act(AGOA), Everything But Arms (EBA)and European Union.

2.2.3.6 Financial Intermediaries

The Government has created conduciveenvironment for the growth of financialinstitutions and financial

intermediaries. Investment in thefinancial sector will bring aboutmanagerial skills, employment,technology transfer, marketingexpertise and marketing link. As of end2003, there were 7 commercial banks, 2insurance companies, over 20 bureauxde change and several trust fundsoperating in Zanzibar.

2.2.4 Legal Aspects

Zanzibar is determined to continueinstituting an acceptable legal andregulatory framework that will increaseand sustain confidence of the businesscommunity. Below are relevant lawsand policies pertaining to investmentsin Zanzibar.

2.2.4.1 Labour Laws

There is an on going process ofreviewing Labour Laws which wasinitiated by the Government in 2002 incollaboration with the InternationalLabour Organization (ILO) and theUnited Nations DevelopmentProgramme (UNDP). The Labour LawReform is intended to: -• Achieve a coordinated and

updated labour legislation inZanzibar;

• Promote accelerated developmentfor good governance;

• Promote sound labour relationsbetween employers, employeeand the Government;

• Promote labour productivity andjob creation;

• Facilitate effective andexpeditious resolutions of labourdisputes.

2.2.4.2 Land Legislations

The Government has adequatelyaddressed and reviewed the landlegislations including Land TribunalAct, Land Tenure Act, Land Survey Actand Land Transfer Act. The primary

8

objectives of reviewing theselegislations are, among others, to createbetter investment environment. TheGovernment offers generous terms ofland lease to investors for 49 years withpossibility of extension or renewal.

2.2.4.3 Taxation Policy

The tax system for Zanzibar has beenimproved overtime to create a better

trade and investment climate. It alsotakes into account harmonization of taxrates currently taking place within EastAfrica Community (EAC) and SouthernAfrican Development Community(SADC) of which Tanzania is amember.

2.2.4.4 Environmental Protection

The Government emphasizes the needto conserve and protect both natural andmarine environment without ignoringthe Rio Convention, which calls for allGovernments in the world to balancebetween environmental conservationand development.

2.2.5 Investment Guarantee

The investment promotion strategies inZanzibar have been improved bymaintaining linkages with otherinternational organizations such asMultilateral Investment GuaranteeAgency (MIGA) and InternationalCenter for Settlement of InvestmentDisputes (ICSID) geared towardsinvestment protection. 2.2.6 Investment Oriented Forums

2.2.6.1 World Association ofInvestment Promotion Agencies(WAIPA)

Zanzibar is a member of WAIPA, aninternational organ that acts as a forumfor investment promotion agencies(IPAs). It provides networkingopportunities and facilitates theexchange of best practices ininvestment promotion. WAIPA aims atimproving cooperation amongst IPAson a regional and global basis andfacilitate the sharing of experiences forthe purpose of attracting FDI. WAIPAalso assists IPAs in advising theirrespective Government in theformulation of appropriate investment

9

Box 2.2.4.4 Environmental Conservation

The thrust of the Government is on ensuring conservation and protection of the environment for a sustainable use ofavailable tourism resources. The Vision 2020 objectives on environmental protection are:• Promoting life quality that is socially desirable, economically and environmentally sustainable• Ensure that environmental resources and values are integrated with development objectives for maximum

contribution to the long term social economic development• Increase economic efficiency in environmental management and natural resources’ use in a manner that ensure

environmental sustainability• Ensure that industries’ effluent and other by-products do not cause unacceptable damage on natural resources• Encourage sustainable and equitable use of natural resources for meeting the basic needs of the present and future

generations without degrading the environment.

Sources: Zanzibar Vision 2020, Tourism Act (2004) and Trade Policy (2004)

Box 2.2.5: Guarantee to investors

The existing legal system for Zanzibar guarantees their rights of wealth possession and prevents confiscation of theirproperties. According to the 1984 Zanzibar Constitution, the Government will confiscate no property whatsoeverwithout the relevant compensation to any investor. Moreover, Tanzania is a member of the Multilateral InvestmentGuarantee Agency (MIGA), which is under the World Bank, and safeguards properties of investors.

Source: Zanzibar Investment Act (2004)

Government website: www.tanzania.go.tz/zanzibar

promotion policies and strategies.

2.2.6.2 InternationalOrganizations Membership

Zanzibar is currently working inpartnership with other internationalorganizations including United NationsIndustrial Development Organizations(UNIDO), United Nations Conferenceon Trade and Development (UNCTAD)

and United Nations DevelopmentProgram (UNDP) to buildentrepreneurial capacity. All theseorganizations provide training andtechnical assistance to both private andpublic sector stakeholders. They arealso targeting the local entrepreneurseeking joint ventures with foreignpartners and foreign investors seekingopportunities in Zanzibar.

10

3.1 Introduction

The survey on Private Capital Flows(PCFs) in Zanzibar was conducted byusing questionnaires. The processinvolved establishment of the scope andcoverage of the survey, institutionalarrangements, preparatory activitiesincluding awareness campaign, trainingworkshop and the establishment of theinvestor’s register.

The survey was an extension of asimilar one carried out in TanzaniaMainland in 2001. The methodologyadopted took into account experiencegained from the Mainland survey andwas adopted to ensure that:• Investors’ register is correct and

comprehensive;• Survey tools are customized to

suit Zanzibar environment;• Good methodology is adopted to

distribute/collect questionnaireand improve responsiveness andquality of collected data;

• There is adequate institutionalcoordination and technicalcapacity;

• There is commitment atinstitutional and researchers level;

• There is public awareness throughmedia programmes.

3.2 Institutional Arrangements

The survey involved the ZanzibarInvestment Promotion Agency (ZIPA),Office of Chief Government Statistician(OCGS) and the Bank of Tanzania(BOT). Other institutions involvedinclude; the Registrar of Companies,Zanzibar Free Economic ZonesAuthority (ZAFREZA), Zanzibar FreePort Authority (ZFPA) and the ZanzibarCommission for Tourism (ZCT). The

reasons of involving these institutionswere to ensure sharing of experienceand expertise, efficient use of availablemanpower at ZIPA and otherinstitutions, building capacity for thisand future census and surveys, jointownership of the PCFs project and theuse of combined legal authority for theconduct of the survey with anticipationof improving compliance. The surveywas coordinated by ZIPA with technicalassistance from the Bank of Tanzania,DFI and MEFMI.

3.3 Awareness Campaign

Creation of awareness to investors andgeneral public was done through thesensitization workshop. The objectiveof the awareness campaign was todemonstrate the purpose andimportance of the study to Zanzibarinvestors and general public. Theawareness campaign was done throughadvertisements on television, radio andnewspapers. Investors were assured ofconfidentiality, which enhanced theircooperation in supplying correctinformation. They were also assuredthat information supplied would beexclusively used for statistical purposesand the results would be published inaggregated form. In addition to thesecampaigns there was a sensitizationworkshop, which involved 54participants, of whom 29 were from theprivate sector and 25 from the publicsector. The public sector participantswere drawn mainly from ministries andGovernment institutions dealing withinvestment matters.

3.4 Training Workshop

A training workshop was conducted inFebruary 2003 with the main objective

CHAPTER THREE

METHODOLOGY

11

of introducing and enhancing theknowledge and skills of researchers andsupervisors in comprehending theconcepts and definitions used in thequestionnaires and other fieldinstruments. A technical teamcomprising four resource persons fromthe Bank of Tanzania (BOT) and DFI,of the UK presided over the training. Atotal of 20 researchers drawn fromZIPA, OCGS, ZCT, ZAFREZA, ZFPAand BOT were trained.

3.5 Compilation of Investors’Register

Identification of targeted investors forthe survey was based on the investors’register that was prepared well inadvance. The register was used to getsuch informations as establishmentname, contact person, physical andpostal address, type of business activity,shareholders particulars and initialcapital investment. About 159companies were identified for thesurvey in the form of fully ownedand/or partnership with Zanzibaris.Several problems were encountered inthe course of identifying companies forthe survey including inability to obtainall investor’s information from a singlesource; lack of proper records from theidentified sources; and non complianceto regulations regarding reportingrequirements.

3.6 Survey Tools and Techniques

Prior to the commencement of the survey,it was pertinent to establish a well-

programmed series of activities tofacilitate its implementation. Theseincluded preparation of the Investor’sRegister; awareness campaign; training ofresearchers, designing of questionnaires;and preparation of survey manual.

3.6.1 The Questionnaires

Three different sets of questionnaireswere designed and distributed tocompanies covered in the survey. Thefirst questionnaire, in blue colour, wasfor the survey of Local and ForeignAssets and Liabilities (FAL) for 2000and 2001. The second questionnaire, ingreen colour, was for the survey ofPrivate Sector External Debt. The thirdquestionnaire, in yellow colour, was forthe investors’ perception.

3.6.2 Administration of theQuestionnaires

Due to easy geographical proximity ofthe registered companies in Zanzibar,all questionnaires were physicallydistributed. Response rate of the surveyis shown in Table 3.6.2.

The overall results indicated a highresponse rate of 97.0 percent. This waslargely attributed to good preparatoryarrangements including awarenesscampaigns.

3.6.3 Survey Manual

Survey manual was used as a guide forresearchers on all survey logistics. Themanual provided highlights on key

12

Table 3.6.2 Distribution of Questionnaires in Zanzibar

Region Number of Dates the Registered Companies Number of Response researchers Survey was Companies served with received Rate

involved done questionnaires questionnaires (Percent)North Unguja 14 10/3-31/3/2003 25 23 23 100.0South Unguja 14 10/3-31/3/2003 20 17 17 100.0Urban West 14 10/3-31/3/2003 105 103 98 95.0North Pemba 1 10/3-31/3/2003 3 1 1 100.0South Pemba 1 10/3-31/3/2003 6 3 3 100.0Total 159 147 142 97.0

issues in the survey such as majorobjectives of the survey, concepts anddefinitions, interview procedures andfollow up visits.

3.7 Data Processing andManagement

3.7.1 Software Development

The Bank of Tanzania developed asoftware package for capturing andprocessing survey data. The softwarewas installed at the Bank of Tanzania–Zanzibar Branch offices in April 2003for processing Zanzibar survey data.

3.7.2 Data Entry and Validation

Data entry exercise started in July 2003and involved six staff from ZIPA and

BOT-Zanzibar Branch. Data validationand verification were done in August2003.

3.7.3 Adherence to InternationalStandards

Attempts were made to comply withinternationally recognized and appliedmethod of measuring and estimatingInvestment data. In this respect, sectorswere classified according toInternational Standard IndustrialClassification (ISIC) and private capitalflows and stock data were presentedaccording to the recommendations ofthe IMF Balance of Payments Manual,5th edition. This will enable Zanzibar toprepare its International InvestmentPosition (IIP) for the first time.

13

4.1 Introduction

This chapter presents findings from thesurvey on foreign private capital flowsin Zanzibar. The study covers threemain components of foreign privatecapital i.e. Foreign Direct Investment(FDI), Portfolio Investments and OtherInvestments. It gives an overview of theanalysis and detailed description of themain components for stocks and flowsfor 2000 and 2001. The briefexplanations of the componentscovered are as follows: -• Foreign Direct Investment (equity

holdings by non-residents of 10percent or more of total equity,reinvested earnings attributable toFDI, long-term, short-termshareholder and inter-companydebts) and related income items(profits, dividends and interest);

• Portfolio Equity (holdings of lessthan 10 percent of total equity)and related income, and Long-term and Short-term debtinstruments;

• Other Investments: (long andshort-term) from other sourcesunrelated to the borrower andsuppliers credits (short-term only)

and their related interestpayments.

4.2 Foreign Private Capital -Magnitude and Composition

Foreign private capital is analyzed infour levels namely (i) mode offinancing (ii) source country ofinvestments, (iii) sectoral distribution,and (iv) regional distribution.

4.2.1 Stock of Foreign Private Capital

The study has revealed that stock oftotal Foreign Private Capital inZanzibar surged to USD 182.9 millionat the end of 2001, from USD 159.6million recorded in 2000 implying anincrease of 14.6 percent (Table 4.2.1.1,Charts 4.2.1a and 4.2.1b). The studyfurther reveals that Foreign DirectInvestments (FDI) dominated theprivate capital stock both in 2000 and2001, followed by Other Investmentsand Portfolio Investments. During2000 FDI stock amounted to USD151.5 million accounting for 94.9percent of total investments, andincreased to USD 174.7 million in 2001accounting for 95.5 percent of total

CHAPTER FOUR

FOREIGN PRIVATE INVESTMENTS IN ZANZIBAR

14

Table 4.2.1.1 Stock of Foreign Private Capital in Zanzibar, 2000 and 2001

Values in USD MillionComponents 2000 2001

Amount Percent Amount PercentForeign Direct Investment 151.5 94.9 174.7 95.5Equity investment 104.4 65.4 115.4 63.1Long-term intra-company loans 38.7 24.3 42.8 23.4Short-term intra-company loans 6.9 4.3 5.9 3.2Suppliers credits from related companies 1.4 0.9 10.7 5.8

Portfolio equity investment 0.3 0.2 0.3 0.2

Other Investments 7.8 4.9 7.8 4.3Long-term loans from unrelated companies 4.7 3.0 5.1 2.8Suppliers credits from unrelated companies 3.0 1.9 2.7 1.5Short-term loans from unrelated companies 0.0 0.0 0.0 0.0Total 159.6 100.0 182.9 100.0

foreign investment. The large share ofFDI has important implications fordomestic investment in the economy. Itmeans that an additional dollar of FDI isassociated with a greater increase indomestic investment than a dollar ofPortfolio investment would bring forth(Obwona and Lucie, 2000).

Stock of Portfolio investmentsremained constant at USD 0.3 millionfor both 2000 and 2001 accounting for0.2 percent of total stock of foreigninvestment. Stock of Other Investmentsamounted to USD 7.8 million in 2000and 2001 and accounted for 4.9 percentand 4.3 percent of total foreigninvestments respectively.

4.2.2 Flows of Foreign PrivateCapital

The survey revealed that trend ofPrivate Capital inflows decreased by66.6 percent from USD 6.3 million

recorded in 2000 to USD 2.1 million in2001 (Table 4.2.2.2, Charts 4.2.2a and4.2.2b). The decline was largelyassociated with decline in ForeignDirect Investment. This was partiallyattributed to uncertainty of the 2000general elections.

During the two years, foreign directinvestments declined from USD 5.7million recorded in 2000 to USD 1.4million in 2001. It was further notedthat Foreign Direct Investment was thelargest in both periods accounting for91.0 percent in 2000 and 67.8 percent in2001. The share of Portfolio equityinvestment remained constant at 0.1percent of total investments in bothperiods, while the share of OtherInvestments increased marginally fromUSD 0.6 million in 2000 to USD 0.7million in 2001. Other Investmentsaccounted for 8.9 percent and 32.5percent of total investments for 2000

15

FDI91.0%

Portfolio Investments

0.1%

Other Investments

8.9%

Chart 4.2.1a: Stock of Foreign Private Capital for 2000

Other Investments

4.3%

PortfolioInvestments

0.2%

FDI95.5%

Chart 4.2.1b: Stock of Foreign Private Capital for 2001

and 2001 respectively. The study alsorevealed that long-term borrowing(both from related and unrelatedsources) was the most important sourceof financing in 2001. In 2000, the mostimportant source of borrowing wasdirect equity and long term borrowingfrom related companies while no long-

term borrowing from unrelatedcompanies was reported.

4.3 Analysis of FDI

The analysis of FDI includes both stockand flows for 2000 and 2001, and givesthe details on mode of financing,

16

FDI91.0%

Portfolio Investments

0.1%

Other Investments

8.9%

Chart 4.2.2a: Flow of Foreign Private Capital for 2000

Other Investments

32.5%

Portfolio Investments

0.0%

FDI67.8%

Chart 4.2.2b: Flow of Foreign Private Capital for 2001

Table 4.2.2.2 Flows of Foreign Private Capital in Zanzibar, 2000 and 2001

Values in USD MillionComponents 2000 2001

Amount Percent Amount PercentForeign Direct Investment 5.7 91.0 1.4 67.8Equity investment 2.8 44.9 0.5 23.8Reinvested earnings 0.0 0.7 -0.1 -5.3Long-term intra-company loans 2.5 40.1 0.8 35.7Short-term intra-company loans 0.3 5.2 0.2 10.3Suppliers credits from related companies 0.0 0.0 0.1 3.1

Portfolio equity investment 0.0 0.1 0.0 0.0

Other Investments 0.6 8.9 0.7 32.5Long-term loans from unrelated companies 0.0 0.0 0.6 26.0Suppliers credits from unrelated companies 0.6 8.9 0.1 6.5Short-term loans from unrelated companies 0.0 0.0 0.0 0.0Total Flows 6.3 100.0 2.1 100.0

distribution by sector, distribution byregion and country of origin.

4.3.1 FDI Stock by Mode ofFinancing

FDI in Zanzibar is categorized intoequity, long-term intra-company loans,

short-term intra-company loans andsupplier’s credit. The study reveals thatequity investments were the dominantsource of funds for 2000 and 2001. Thestock of equity investments amounted toUSD 104.4 million in 2000 and USD

115.4 million in 2001 accounting for 68.9percent and 66.0 percent of total FDIrespectively (Table 4.3.1.1, Charts4.3.1a and 4.3.1b). The second majorsource of financing was long-term intra-company loans, which amounted to USD38.7 million by end 2000 and USD 42.8million at end 2001 representing 25.6

percent and 24.5 percent of total stock ofFDI respectively. Short-term intra-company loans were the third source in2000 amounting to USD 6.9 million or4.6 percent of the total stock of FDI.Suppliers credit from related companies

17

Equity

68.9%

Short - term

4.6%Long - term

25.6%

S/Credit

0.9%

Chart 4.3.1a. Stock of FDI by Mode of Financing for Zanzibar for 2000

S/Credit6.1%

Short term 3.4%

Equity 66.0%

L/term24.5%

Chart 4.3.1b. Stock of FDI by Mode of Financing Types for Zanzibar for 2001

Table 4.3.1.1 Stock of FDI by Mode of Financing, 2000 and 2001

Values in USD MillionType 2000 2001

Amount Percent Amount Percent Equity 104.4 68.9 115.4 66.0Long-term (intra-company) 38.7 25.6 42.8 24.5Short-term (intra-company) 6.9 4.6 5.9 3.4Suppliers credit 1.4 0.9 10.7 6.1Total 151.5 100.0 174.7 100.0

amounted to USD 10.7 million or 6.1percent of the total FDI stock. The short-term loans from intra-company sourceswere the least source in 2001, amountingto USD 5.9 million or 3.4 percent of thetotal. The analysis therefore shows thatFDI appears to be quite sustainable, as it

comprises mainly of equity and long-term borrowing. However supplierscredit appears to be very volatile.

4.3.2 Flows of FDI by Mode ofFinancing

The study shows that in 2000, flows ofFDI amounted to USD 5.7 millionbefore declining substantially to USD1.4 million in 2001. Further, FDI flowsin 2000 were dominated by equity thatamounted to USD 2.8 million, being49.1 percent of total. This was followedby long-term intra-company loanswhich amounted to USD 2.5 million or44.6 percent in 2000, while short-termintra-company loans amounted to USD0.3 million or 5.4 percent of the total.

The order of ranking was reversed in2001 where equity financing ranked

second. The top source of financingduring 2001 was long-term intra-company loans despite its decline toUSD 0.8 million from USD 2.5 millionin 2000. Short-term intra-companyloans were only USD 0.2 million in2001 showing a decline of USD 0.1

million from USD 0.3 million in 2000.

4.3.3 Stock of FDI by Sector

The study reveals that sectoraldistribution of FDI stocks was in favourof Wholesale and retail trade sector, ofwhich tourism services sub-sectoraccounted for over 80.0 percent for2000 and 2001 due to huge investmentsin tourist hotels and restaurants. Theshare of the sector was 71.0 percent and69.9 percent in 2000 and 2001respectively. The second sector withhigh FDI stock was Transport, storageand communication that accounted for16.8 percent in 2001, followed byManufacturing with a share of 9.4percent in 2001. The share ofAgriculture was the lowest averaging0.2 percent during 2000-01. AlthoughAgriculture is the dominant sector, it

18

Table 4.3.2.1 Flows of FDI by Mode of Financing, 2000 and 2001

Values in USD MillionFinancing 2000 2001

Amount Percent Amount PercentEquity investment 2.8 49.1 0.5 33.3Reinvested earnings 0.0 0.0 -0.1 -6.7Long-term intra-company loans 2.5 44.6 0.8 53.3Short-term intra-company loans 0.3 5.4 0.2 13.3Suppliers credits from related companies 0.0 0.0 0.1 6.7Total FDI flows 5.7 100.0 1.4 100.0

Table 4.3.3.1 Stock of FDI by Sector for 2000 and 2001

Values in USD MillionSector 2000 2001

Amount Percent Amount PercentWholesale and retail trade, catering 107.6 71.0 122.2 69.9Transport, storage 30.7 20.3 29.4 16.8Manufacturing 7.5 4.9 16.4 9.4Utilities 0.0 0.0 0.0 0.0Financing, insurance, real estate 2.5 1.6 3.4 1.9Community, social and personal services 2.6 1.7 2.6 1.5Construction 0.4 0.3 0.5 0.3Agriculture, hunting, forestry 0.3 0.2 0.3 0.2Total 151.5 100.0 174.7 100.0

has not adequately attracted FDI (Table 4.3.3.1 and Chart 4.3.3).

4.3.4 Analysis of FDI Flows by Sector

FDI flows by sector are different fromstocks. While for the case of FDI stocksWholesale and retail trade was thedominant sector, Community, socialand personal services sector wasleading in term of FDI flows. The latterwas attributed to the surge ofinvestments in education and healthsector, which received USD 2.5 millionin 2000 but recorded an insignificantamount of flows in 2001. Wholesaleand retail trade was however, theleading sector in terms of FDI flows in2001. The sector recorded FDI inflowof USD 1.5 million in 2001, which wasabout the same level when comparedwith 2000. The rest of the sectorsrecorded insignificant amounts of FDIinflows during 2001 (Table 4.3.4.1).

4.3.5 Stock of FDI by Region

The study revealed that, stock of FDI were concentrated in Urban West andNorth Unguja regions. Urban Westregion had the highest stock of FDIamounting to USD 85.9 million by theend of 2001, being 49.2 percent of thetotal stock. This is an increase of 9.6percent from USD 78.4 million as at theend of 2000 (Table 4.3.5.1 and Chart4.3.5). North Unguja was second witha stock of USD 54.7 million in 2001,being an increase of 4.2 percent fromUSD 35.9 million in 2000. It can benoted that in 2000, South Unguja regionwas second largest recipient of FDI butin 2001. North and South Pembaregions were the fourth and fifth in FDIstock in 2001 respectively. Both regionsreceived less than one percent of thetotal stock of FDI.

19

Table 4.3.4.1 Flows of FDI by Sector, 2000 and 2001

Values in USD MillionSector 2000 2001

Amount Percent Amount PercentAgriculture, hunting, forestry 0.0 0.0 0.0 0.1Community, social and personal 2.5 44.0 0.0 -1.2Construction 0.0 0.0 0.0 0.0Financing, insurance, real estate 0.0 0.1 0.0 0.2Manufacturing 0.0 0.0 0.0 -0.1Transport, storage 1.6 27.5 0.0 -3.2Utilities 0.0 0.0 0.0 0.0Wholesale and retail trade, catering 1.6 28.4 1.5 104.2Total 5.7 100.0 1.4 100.0

0.0

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20.0

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40.0

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60.0

70.0

80.0

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2000 2001

Chart 4.3.3 Stock of FDI by Sector, 2000 and 2001

4.3.6 Flow of FDI by Region

Regional distribution of FDI flowscorresponds with that of stocks. Thelargest recipients are the same regionson both stocks and flows. Urban Westregion was the largest recipient of FDIin both 2000 and 2001 receiving USD2.9 million and USD 1.1 millionrespectively. South Unguja and NorthUnguja followed in that order recordingUSD 0.3 million and USD 0.1 millionrespectively in 2001. North Pemba andSouth Pemba regions did not receiveany FDI inflows during 2000 and 2001(Table 4.3.6.1 and Chart 4.3.6).

4.3.7 Stock of FDI by Country ofOrigin

FDI in Zanzibar originate mainly fromthe Organization for Economic Co-operation and Development (OECD)countries, the Middle East and sixAfrican countries namely Ethiopia,Kenya, Mauritius, Rwanda, SouthAfrica and Zambia.

The survey shows that in 2000 most ofFDI stock in Zanzibar originated fromthe OECD countries and amounted toUSD 118.3 million, being 78.0 percentof total stock. Investments from non-OECD countries amounted to USD 33.0

20

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Urban West South Unguja North Unguja North Pemba South Pemba

Percent

FDI 2000 FDI 2001

Chart 4.3.5 Stock of FDI by Region, 2000 and 2001

Table 4.3.5.1 Stock of FDI by Region, 2000 and 2001

Values in USD MillionRegion 2000 2001

Amount Percent Amount PercentUrban West 78.4 51.8 85.9 49.2South Unguja 36.1 23.8 33.1 18.9North Unguja 35.9 23.7 54.7 31.3North Pemba 1.0 0.7 1.0 0.6South Pemba 0.1 0.0 0.1 0.0Total 151.5 100.0 174.7 100.0

Source: Tanzania Investment Report 2004

Table 4.3.6.1 Flow of FDI by Region, 2000 and 2001

Values in USD MillionRegion 2000 2001

Amount Percent Amount PercentUrban West 2.9 50.8 1.1 74.4North Unguja 2.5 43.3 0.1 6.4South Unguja 0.3 6.0 0.3 19.2South Pemba 0.0 0.0 0.0 0.0North Pemba 0.0 0.0 0.0 0.0Total 5.7 100.0 1.4 100.0

million, or 22.0 percent of total FDIstock in Zanzibar (Appendix 1, Table5). In 2001, OECD also dominated FDIstocks contributing USD 139.5 million(79.8 percent) while non-OECDcountries had a stock of USD 35.3million (20.2 percent) of the total.

In 2000, United Kingdom was thedominant source of FDI from OECDcountries having invested USD 59.8million in Zanzibar, which is 39.5percent of the total stock (Chart4.3.7a). Italy and Switzerland were thesecond and third largest investors inZanzibar with 27.5 percent and 6.1percent of total FDI stock respectively.Investments from USA amounted toUSD 2.2 million, accounting for 1.5percent of total FDI stock.

For non-OECD countries, United ArabEmirates was a dominant source in2000 with FDI stock worth USD 13.9million accounting for 9.2 percentfollowed by South Africa, with USD 9.2million accounting for 6.1 percent oftotal FDI (Chart 4.3.7b). During thesame period, FDI stock originatingfrom Bahamas and Oman amounted toUSD 4.1 million and USD 3.2 millionaccounting for 2.7 percent and 2.1percent respectively. The contributionof other countries (Ethiopia, Kenya,Rwanda, Zambia and Mauritius) wasless than one percent of the total FDIstocks in 2000.

During 2001, the United Kingdom andItaly continued to dominate FDI stockfrom the OECD countries with USD56.6 million and USD 36.2 million,

21

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Urb

an

Wes

t

Nor

th

Ung

uja

Sou

th

Ung

uja

Sou

th

Pem

ba

Nor

th

Pem

ba

2000 2001

Chart 4.3.6 Flows of FDI by Region, 2000 and 2001

Source: Tanzania Investment Report 2004

0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00

Greece

Norway

Denmark

Sweden

Japan

USA

Spain

Italy

Switzeland

UK

Percent

Chart 4.3.7a Top Ten OECD Countries with high FDI Stock, 2000 and 2001

accounting for 32.4 percent and 20.7percent respectively. Spain, EUcountries and Switzerland were theother key sources of FDI for Zanzibar.Investments from USA amounted toUSD 2.2 million accounting for only1.2 percent of total stock.

For non-OECD countries, the studyreveals that in 2001, United ArabEmirates (UAE) and South Africacontinued to dominate having investedUSD 14.5 million and USD 8.3 millionstock of FDI respectively. Investmentsfrom Oman, Bahamas and Kenyaamounted to USD 9.9 million in 2001.Other countries such as Bahrain,Ethiopia, Rwanda and Zambia investedbelow 1.0 percent of total FDI each.

4.3.8 Flows of FDI by Country ofOrigin

FDI inflows in Zanzibar originate

mainly from the OECD countries, theMiddle East (Oman, United ArabEmirates) and five African countries(South Africa, Kenya, Ethiopia,Rwanda and Zambia). During 2000,FDI flows from OECD countriesamounted to USD 5.65 millionrepresenting 99.0 percent of total FDIinflows. During 2001, FDI flow fromOECD countries declined to USD 0.8million from USD 5.7 million in 2000.Lower inflows came from Australia,Austria, Netherlands, and UnitedKingdom. In contrast, FDI inflows fromnon-OECD countries increased fromUSD 0.1 million in 2000 to USD 0.7million in 2001 mostly from Oman andUnited Arab Emirates (Chart 4.3.8 andTable 6 in Appendix 1)

The study shows further that during2000, Australia dominated FDI inflowsfrom the OECD countries byaccounting for 43.7 percent of total

22

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

Mauritius

Rwanda

Zambia

Bahrain

Ethiopia

Bahamas

Kenya

South Africa

Oman

UAE

Percent2000 2001

Chart 4.3.7b FDI Stock From Non-OECD Countries, 2000 and 2001

-10.00 0.00 10.00 20.00 30.00 40.00 50.00

Norway

Spain

Sweden

Switzerland

USA

Greece

Austria

Netherlands

United Kingdom

Australia

Percent

2000 2001

Chart 4.3.8 FDI Flows, Top Ten OCED Countries, 2000 and 2001

inflows while the UK contributed 34.7percent and the Netherlands 13.0percent. During 2001, the trend changedsignificantly whereby Switzerland andItaly invested USD 0.35 million (24.9percent) and USD 0.27 million (19.2percent) respectively.

4.3.9 Debt to Equity Ratios

Analysis of debt-equity ratio of FDIaveraged 36.2 percent in 2000 beforedeclining to 34.3 percent in 2001. Thissignifies that debt financing is relativelylow compared to equity financing(Table 4.3.9.1).

4.4 Analysis of PortfolioInvestments

4.4.1 Stock of Portfolio Investmentsby Sector

The study reveals that the stock ofPortfolio Investments is relatively smallwhen compared with that of FDI. Thestock of Portfolio Investmentsincreased marginally from USD 0.3

million in 2000 to USD 0.4 million in2001. Wholesale and retail trade sectorreceived 95.1 percent of the total stockof Portfolio Investments by the end of2000 while Transport, storage andcommunications sector attracted 4.9percent. (Table 4.4.1.1).

4.4.2 Flows of Portfolio Investmentsby Sector

The study reveals that Wholesale andretail trade and catering (dominated bytourist hotels) absorbed all PortfolioInvestments flows during 2000. During2001 the same sector dominated by

attracting 93.8 percent of the totalPortfolio investment flows. Themanufacturing sector accounted for 6.2percent of the total flows (Table 4.4.2.1).

4.5 Other Investments

4.5.1 Stock of Other ForeignInvestment by Sector

Other Foreign Investments include longand short-term loans from unrelated

23

Table 4.3.9.1 Debt Equity ratio (percentage), 2000 and 2001

2000 2001Debt/Equity Ratio (FDI stock Components only) 36.2 34.3

Table 4.4.1.1 Stock of Portfolio Investments by Sector, 2000 and 2001

Values in USD MillionSector 2000 Percent 2001 PercentWholesale and retail trade, catering 0.3 95.1 0.3 92.8Transport, storage 0.0 4.9 0.0 7.2Manufacturing 0.0 0.0 0.0 0.0Total 0.3 100.0 0.4 100.0

Table 4.4.2.1 Flows of Portfolio Investments by sector, 2000 and 2001

Values in USD MillionSector 2000 2001

Amount Percent Amount PercentManufacturing 0.0 100.0 0.0 6.2Transport, storage 0.0 0.0 0.0 0.0Wholesale and retail trade 0.0 0.0 0.5 93.8Total 0.0 100.0 0.6 100.0

companies. Stock of Other ForeignInvestments was USD 7.8 million in2000 and remained the same in 2001.Only Wholesale and retail trade,Transport, storage and communication,and Manufacturing sectors borrowedabroad. In 2001, the Wholesale andretail trade sector borrowed USD 4.7million compared to USD 4.5 million in2000. The stock of Other ForeignInvestments that was absorbed in theTransport, storage and communicationsector amounted to USD 2.7 million,accounting for 34.7 percent while theManufacturing sector absorbed USD0.4 million or 4.9 percent of the totalstock of Other Foreign Investments in

2001 (Table 4.5.1.1).4.5.2 Flows of Other Foreign

Investments by Sector

Sectoral distribution of Other ForeignInvestments Flows shows that Transport,storage and communication sector was thesole beneficiary during 2000. The samesector continued to dominate during 2001

by accounting for 65.2 percent of totalOther Foreign Investment flows while theremaining 34.8 percent was absorbed inthe Wholesale and retail trade sector(Table 4.5.2.1).

4.5.3 Stock of Other ForeignInvestments by Region

The study reveals that only thecompanies in Unguja borrowed fromabroad. Companies in Urban Westregion borrowed USD 5.3 millionrepresenting 68.1 percent of the totalOther Foreign Investments. NorthUnguja region was second with a stockof USD 1.5 million accounting for 19.3

percent, while South Unguja absorbedUSD 1.0 million equivalent to 12.6percent of the total stock of OtherInvestments (Table 4.5.3.1).

4.5.4 Flows of Other ForeignInvestments by Region

Regional Distribution of Other Foreign

24

Table 4.5.1.1 Stocks of Other Investments by Sector, 2000 and 2001

Values in USD MillionSector 2000 2001

Amount Percent Amount PercentWholesale and retail trade 4.5 57.2 4.7 60.5Transport, storage and communication 3.0 38.2 2.7 34.7Manufacturing 0.4 4.5 0.4 4.9Total 7.8 100.0 7.8 100.0

Table 4.5.2.1 Flows of Other Foreign Investments by Sector, 2000 and 2001

Values in USD MillionSector 2000 2001

Amount Percent Amount PercentManufacturing 0.0 0.0 0.0 0.0Transport, storage 0.6 100.0 0.1 65.2Wholesale and retail trade 0.0 0.0 0.1 34.8Total 0.6 100.0 0.2 100.0

Table 4.5.3.1 Stock of Other Foreign Investments by Region, 2000 and 2001

Values in USD MillionSector 2000 2001

Amount Percent Amount PercentSouth Unguja 1.0 12.6 1.0 12.6North Unguja 1.5 19.3 1.5 19.3Urban West 5.3 68.1 5.3 68.1South Pemba 0.0 0.0 0.0 0.0North Pemba 0.0 0.0 0.0 0.0Total 7.8 100.0 7.8 100.0

Investments show that Urban Westreceived the entire flows both in 2000and 2001 which was USD 0.6 millionand 0.7 million respectively.

4.5.5 Stock of Other ForeignInvestments by Country ofOrigin

The study shows that by the end of2000, OECD countries invested USD5.1 million accounting for 65.6 percentof the total stock of Other ForeignInvestments, out of which UnitedKingdom dominated by investing USD3.8 million (48.5 percent). The secondand third largest sources were USA andItaly with USD 0.8 million (10.4percent) and USD 0.5 million (5.8percent) respectively (Table 4.5.5.1).

China was the only non-OECD countrywith Other Foreign Investments stockof USD 0.1 million in both 2000 and2001, accounting for 0.7 percent and0.6 percent respectively. Internationalorganizations availed USD 2.5 million,accounting for 31.9 of total stock ofOther Foreign Investments for 2000 and2001. During 2001, OECD countries

continued to dominate the stock ofOther Foreign Investments with slightimprovement to USD 5.3 million fromUSD 5.1 million registered in 2000representing 67.5 percent of total stockof Other Investments. Most of theseinvestments were from the UnitedKingdom which invested USD 3.59million (46.1 percent), USA with USD0.9 million (12.1 percent) and Italy withUSD 0.6 million (7.8 percent).

4.5.6 Flows of Other ForeignInvestments by Country ofOrigin

The survey results show that OtherForeign Investments flows whichoriginated from OECD countries for2000 and 2001 were from the UnitedKingdom only and amounted to USD0.7 million. However, these inflowsdeclined to USD 0.4 million (54.9percent) in 2001. The second largestsource in 2001 was USA with USD 0.3million (38.1 percent) followed bySpain and Japan with 5.0 percent and2.0 percent of the total Other ForeignInvestments respectively (Table4.5.6.1).

25

Table 4.5.6.1 Flows of Other Investments by Country of Origin

Values in USD MillionCountry 2000 Country 2001

Amount Percentage Amount PercentageUK 0.6 100.0 Japan 0.0 2.0

Spain 0.0 5.0USA 0.3 38.1UK 0.4 54.9

OECD countries 0.6 100.0 OECD countries 0.7 100.0Non-OECD countries 0.0 0.0 Non-OECD countries 0.0 0.0Total Flows 0.6 100.0 Total Flows 0.7 100.0

Table 4.5.5.1 Stock of Other Foreign Investments by Country of Origin

Values in USD MillionCountry 2000 Country 2001

Amount Percentage Amount PercentageItaly 0.5 5.8 Italy 0.6 7.8United Kingdom 3.8 48.5 United Kingdom 3.6 46.1Spain 0.1 0.9 Japan 0.0 0.2USA 0.8 10.4 Spain 0.1 1.3

USA 0.9 12.1OECD Countries 5.1 65.6 Non-OECD Countries 5.3 67.5China 0.1 0.7 China 0.1 0.6Non-OECD Countries 0.1 0.7 Non-OECD Countries 0.1 0.6International organization 2.5 31.9 International organization 2.5 31.9Other countries 0.1 1.8Total Stock 7.8 100.0 Total Stock 7.8 100.0

4.6 Income on Investments

Foreign direct investments areassociated with returns that are paid outas dividends and interest on equity andforeign borrowings respectively.

4.6.1 Dividends

The study reveals that during 2000 and2001, a sum of USD 1.4 million waspaid out as dividends to non-residentshareholders. Out of this, USD 0.6million was paid out in 2000 and USD0.8 million in 2001. The study revealedthat, all payments were only from theTransport, storage and communicationssector, most of which originated fromtelecommunications sub-sector (Table4.6.1.1).

4.6.2 Interest

During the survey period, debt-servicing (interest on loans) amountingto USD 1.8 million was paid out. Long-term shareholding related interestsamounted to USD 0.8 million whileinterest on other long-term borrowingsfrom unrelated companies amounted toUSD 1.0 million (Table 4.6.2.1).

26

Table 4.6.1.1 Dividend paid-out by Sector, 2000 and 2001

Values in USD MillionSector 2000 2001 TotalTransport, storage and communication 0.6 0.8 1.4Utilities 0.0 0.0 0.0Wholesale and Retail trade 0.0 0.0 0.0Total 0.6 0.8 1.4

Table 4.6.2.1 Interest Payment by Debt Type, 2000 and 2001

Debt Type 2000 2001Share Holder and Inter-company borrowing 0.4 0.4Other long-term borrowing from unrelated companies 0.5 0.5Total 0.9 0.9

4.6.3 Rate of Return on Foreign

Equity

The survey revealed that during 2000,returns on foreign equity (netprofit/equity) was highest in theWholesale and retail trade sector which

registered 6.5 percent. The second

sector was Finance, insurance and real

estate, which recorded 5.9 percent whileAgriculture, Community, social andpersonal services and Constructionsectors recorded zero returns. The lossmaking sectors in 2000 were

27

Table 4.6.3.1 Rate of Return on Foreign Equity, 2000 and 2001

Values in USD MillionTotal Foreign 2000 2001

Equity Net Profit/ Return on Net Profit/ Return on Sector loss Foreign loss Foreign

Equity Equity(percentage) (percentage)

Profit Making Sectors 92.4 5.9 6.4 0.3 0.3Wholesale and retail trade, catering 88.3 5.7 6.5 0.0 0.0Agriculture, hunting, forestry and fishing 0.2 0.0 0.0 0.0 0.0Construction 0.5 0.0 0.0 0.0 0.0Finance, insurance, real estate 3.4 0.2 5.9 0.3 8.8Loss making sectors 23.1 -2.9 -12.6 -2.1 -9.1Community, social and personal services 2.6 0.0 0.0 -0.6 -23.1Manufacturing 5.2 -0.1 -1.9 0.0 0.0Transport, storage and communication 15.3 -2.8 -18.3 -1.5 -9.8Total 115.5 3.0 2.6 -1.8 -1.6

Percen

t

Sector

Utilitie

s

Financ

ing &

Insura

nce

Agricu

lture &

hunting

Const

ruction

Comm

unity & Soc

ial

Manuf

acturin

g

Whole

sale &

Retail

trade

Transp

ort &

Storag

e

50.0

40.0

30.0

20.0

10.0

0.0

-10.0

-20.0

-30.0

Chart 4.6.3a Rate of Return by Sector, 2000

Utilit

ies

Agric

ulture

&

hunti

ng

Financ

ing &

Insura

nce

Const

ructio

n

Manu

factur

ing

Whole

sale &

Retai

l trade

Transp

ort &

Storag

e

Comm

unity

&

Socia

l

Sector

Perce

nt

40.0

30.0

20.0

10.0

0.0

-10.0

-20.0

-30.0

Chart 4.6.3b Rate of Return by Sector, 2001

5.1 Introduction

This chapter evaluates investors’perception on how various social andeconomic factors have influenced theirinvestment decisions and businessoperations in Zanzibar. During thesurvey, investors were requested toprovide their views on factors influencingtheir business and investment decisionsin Zanzibar. The factors that wereconsidered include economic policies,financial policies, political andgovernance issues, labour laws, utilitiesand infrastructure. These factors weresubdivided into 50 sub factors reflectingspecific aspects under each factor (SeeAppendix 4). Investors were asked torank each sub-sector from 1 to 5 in adescending pattern reflecting its strengthi.e., 1 for strong positive effect; 2 forpositive effect, 3 for no effect, 4 fornegative effect, and 5 for strong negativeeffect. Investors were also required togive opinion on their future investmentplans over the next 3 years, source ofinformation that help them makeinvestment decision, initiatives by theGovernment on investment promotion

and any other comments related toGovernment policies.

5.2 Overall Perception Results

The survey results revealed that,generally, all factors, with the exceptionof macroeconomic policies, were ratednegative during start up and now4

periods. Infrastructure factor improvedduring 2003 from a negative effect at“start-up”. Other factors namelyfinancial, political and governance,labour, utilities, and diverse factorswere rated negative during bothperiods. However, there has been someimprovement on most of these factorsover time. The improvement is a resultof reform measures the ZanzibarGovernment has been undertaking inorder to, inta alia, create a conduciveinvestment climate (Chart 5.2).

5.3 Analysis of Group Factors

5.3.1 Macroeconomic Factors

Macroeconomic factors are categorizedinto eight sub factors. The results reveal

that trade related factors such as tradepolicies, market expansion, tradeliberalization, and regional integration were

CHAPTER FIVE

INVESTORS’ PERCEPTION

28

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Macroeconomic

Financial policies

Political and governance

labour

Utilities

Infrastructure

Diverse

Start Up Now

Chart 5.2: Investors' Perception During Start up and Now Periods

4 Start up refers to the period when an establishmentcommenced business whereas ‘now’ refers to year2003, when the survey was conducted.

rated strong positive implying that investorshad favourable perceptions on these subfactors. Trade liberalization policies wererated most positive (Chart 5.3.1).

The observed investors’ strong positiveperceptions on trade related factors area result of the country’s initiatives topromote trade since it has limited

natural resources. It also indicates thatinvestors are eager to take advantage ofTanzania’s involvement in regionalintegration and other bilateral andmultilateral trade initiatives includingthe East African Customs Union(EACU), SADC, AGOA and EBA. Theprudent monetary policy, which thegovernment has been pursuing,culminated into single digit level ofinflation since 1999 hence creating afavourable investment environment.

5.3.2 Financial Factors

Investors’ perceptions on all financialfactors were negative except financialsector stability and liberalization ofcapital account. This is largely due tothe absence of credit rating, limitedavailability of long-term creditparticularly from the local financialinstitutions, few specialized financialintermediaries as well as inadequatefinancial instruments. Lending rates are

also high in Zanzibar partly due to highrate of default. The latter has hinderedpotential investors to access loans forfurther investments. However, Zanzibarhas undergone substantial financialsector reforms and a number offinancial institutions have beenestablished. Currently there are sixcommercial banks, 23 bureaux de

change, 2 insurance companies 3 trustfund institutions and several microfinance institutions.

The depreciation of Tanzanian Shillinghad negative effect in the start up periodfor most investors but improved in 2003.The Tanzania Shilling depreciated againstthe US Dollar from TZS 803.3 by the endof December 2000 to TZS 916.3 the sameperiod in 2001. Depreciation of thecurrency was caused by, among others,increased demand for foreign currency tofacilitate importation of materials duringthe initial stage of establishing thebusiness.

The capital account which has beenpartially liberalized had positive effect.Full liberalization will have morepositive impact on investors.

29

-2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00

Trade policies

Market expansion

Trade liberalization

Regional Integration

Macroeconomic policies

Monetary Policy

Inflation

Fiscal Policy

Now Start Up

Chart 5.3.1 Investors' Perceptions on Macroeconomic Factors During Start up Period and Now Period

5.3.3 Governance and PoliticalFactors

Investors’ perceptions on governanceand political factors revealed mixedresults. Internal security, land law andadministration, and investmentfacilitation were rated positive during the“start-up” while tax collection efficiencyhad no effect. In 2003, only investmentfacilitation, land law and administrationfactors maintained a positive status.Regional stability, which was ratedpositive during start up, deteriorated to noeffect status, implying that it is not one ofthe crucial determining factors forinvestment in Zanzibar.

Domestic political stability wasnegative at start up but improved topositive in 2003 largely due toreconciliation of political differences

among the two major political parties.The governance factors namely multilicensing, smuggling, corporate sector corruption, customs procedures,enforcement of environment legislation,bureaucracy, effectiveness of legalsystem and public sector corruptionwere all negative in the “start-up”. Taxcollection efficiency factor showedlittle improvement in 2003 though stillnegative. This improvement isattributed to the enforcement ofinvestment environment legislation,anti smuggling measures andestablishment of the Ministry ofConstitutional Affairs and GoodGovernance. Customs procedures werereviewed and the Tanzania RevenueAuthority strengthened taxadministration with the view ofenhancing tax collections efficiency.The legal system has been strengthenedfollowing the establishment the Office

30

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Liberalization of capital account

Financial sector stability

Banking services

Availability local finance

Availability of foreign finance

Interest rates

Exchange rates

Absence of credit rating

Start Up Now

Fig 5.3.2: Financial Factors as Perceived by Investors During Start up and NowPeriods

-2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00

Domestic political stability Regional political stability

Bureaucracy

Effectiveness of legal system

Enforcement of environment legislation

Custom Procedure

Public sector corruption

Corporate sector corruption

Internal security

Tax collection efficiency

Land law and administration

Investment facilitation

Smuggling

Multi licensing

Start Up Now

Chart 5.3.3 Investors’ Perceptions on Government and Political Factors During Startup and Now Periods

of Public Prosecution with autonomy topursue legal issues in courts of law withminimal delays (Chart 5.3.3).

5.3.4 Speed of Decision Making byGovernment Institutions

The analysis of the ‘Speed of DecisionMaking’ factor involved assessment ofeleven Government institutions. Thespeed of decision-making wasimpressive in both periods exceptZanzibar Revenue Board, which wasrated negative during 2003 (Chart5.3.4).

Speed of decision-making at ZanzibarInvestment Promotion Agency (ZIPA)was rated favourable and improving.The other institutions that showedimprovement include Department ofEnvironment, Tourism Commission,

Labour Commission, MigrationDepartment and the Bank of Tanzania.The institutions that were perceivedpositive but decreasing are TanzaniaRevenue Authority (TRA), ZanzibarFree Port Authority (ZFPA), ZanzibarFree Zones Authority (ZAFREZA) andPeople’s Bank of Zanzibar (PBZ).

5.4 Labour Factors

The study revealed that labour factorswith exception of wage level hadnegative effect on investment decisions.(Chart 5.4).

The wage level was found to be positiveand maintained the same position inboth periods implying that labour cost isnot an inhibiting factor to investors.Wage levels in Zanzibar are generally

31

- 2.0 - 1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

ZIPA

Zanzibar Free Economic Zone

Zanzibar Free Port

ZRB

TRA

Migration

BOT

PBZ

Labour Commission

Tourism Commission

-Dept. of Environme nt

Start Up Now

Chart 5.3.4: Government institutions’ Speed of Decision as Perceived by Investors During Start up and Now Periods

-2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00

Education and skill level

Wage level

HIV AIDS

Labour legislation

Restriction on foreign experts

Work ethics

Start Up Now

Chart 5.4: Investors' Perceptions on Labour Factors During Start up and Now Periods

low compared with Tanzania Mainland.The education and skill level sub-factorhad a negative effect during “start-up”but improved during 2003. This impliesthat the standard of education and skillsis low but improving as a result ofconcerted efforts by the Government toimprove the standard of education.Work ethics also improved from the‘start- up’ period to 2003 although itstill remained negative. Labourlegislation was negative during ‘start-up’ and maintained the same position in2003. HIV/AIDS remained in thenegative position during ‘start-up’ and2003 and remains a threat to the humanresource in Zanzibar.5.5 Telecommunication and

Utilities

The study revealed that electricity andwater supply had negative effects oninvestments. Unreliability of electricitysupply and its higher tariff are the mainproblems that have been facingZanzibar for a long time. The mainsource of water in Zanzibar is groundwater. However there has been

improvement in the supply of water andelectricity between the ‘start-up’ and2003 (Chart 5.5).

Availability of telecommunicationservice, which improved significantlyfrom negative to positive, was ratedpositive as a result of private sectorparticipation in the provision oftelecommunication services.

5.6 Infrastructure

Factors assessed under infrastructureare inland transport, access to seaport,air transportation, and port operation.Perceptions on all infrastructure factorswere favourable except for port

operations, which remained unchanged.Although investors’ perceptions oninland transport show improvement,there is a need for more improvementsparticularly on the rural and feederroads. These improvements were due toGovernment’s efforts in constructingnew roads and undertaking roadmaintenance and repairs (Box 5.6).

5.7 Other Diverse Factors

32

Box 5.4: Role of the Government in HIV/AID Control

The Government through the Ministry of Health has been combating HIV/AIDS through AIDS Commission. Thecommission is charged with the task of laying out strategies for combating HIV/AIDS, to control and reduce itseffects, to undertake advocacy on the causes and effects of HIV/AIDS as well as extending treatment and care topeople suffering from HIV/AIDS related diseases. Zanzibar received a total of USD 4.0 million grant from the WorldBank for the period 2002/03 for combating HIV/AIDS. Website: www.tanzania.go.tz/zanzibar

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Electricity supply

Electricity tariff

Water supply

Water tariff

Availability of telecommunication service

Telecommunication tariff

Start Up Now

Chart 5.5: Investors' Perceptions on Utility and Telecommunication Factors During Start up and Now Periods

Other diverse factors had 3 sub factorsi.e. access to new technology, municipalservices, and domestic suppliers. All thethree factors were perceived to haveimproved but many investors haveindicated that municipal services arestill inadequate (Chart 5.7).

5.8 Other Investors’ Perceptionson Improving InvestmentClimate

Investors were also asked to cite theirperceptions on other issues related totheir investment decisions. Theseperceptions are important indetermining future direction of foreigninvestment in Zanzibar as they arebased on experience during investorsactual operations. The issues that are

33

Box 5.6: Incentive Package for Infrastructure Development

The Government of Zanzibar has put in place special package of fiscal incentive in the area of infrastructuredevelopment. Recognizing the importance of infrastructure in the economy, the Government has offered tax relief toall private expenditure directed towards infrastructure expenditure in order to lure investors into this sector.According to the Zanzibar Investment Policy (ZIP), a 100 percent tax relief has been offered to all expenses directedinto this sector.

Source: Zanzibar Investment Policy (2004), Zanzibar Vision 2020

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Inland transport

Access to sea port

Air transportation

Port operation

Start Up Now

Chart 5.6: Infrastructural Factors as Perceived by Investors During Start-up and Now Periods

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Access to new technology

Municipal services

Domestic suppliers

Start Up Now

Chart 5.7 Diverse Factors as Perceived by Investors During Start up and Now Periods

considered in this section include;investment direction in Zanzibar overthe next three years, sources ofinformation, promotion of investment,employment, sources of raw materialsand other Government policies.

5.8.1 Investment Direction inZanzibar Over the Next ThreeYears

Most investors are optimistic on futureinvestment in Zanzibar. The findingsshow that 67.0 percent of investorswere optimistic on future expansion oftheir investments while 29.0 percent donot expect any change and theremaining 4.0 percent expect acontraction. Those who indicated thatthey would contract their investmentswere of the view that future investmentswill be unfavourable due toenvironmental degradation, limited landfor expansion, terrorist threats andunfavorable fiscal policies.

It was also revealed that majority ofinvestors who are optimistic argue that

opportunities do exist for financialsector reform, which avail betterservices and increase credit supply toinvestments. In addition, Zanzibar’spotential, as a tourist destination isharnessed to facilitate moreinvestments. However investorsexpressed the need to put in placedeliberate policy measures to improve

inter-sectoral linkages, which is likelyto have multiplier effects in theeconomy and attract private capitalinflows into various sectors.

The study revealed that investors whoexpect neither expansion norcontraction of their investments had thefollowing reasons: • There are no opportunities to

attract more investments inZanzibar hence do not expectimprovement on the existinginvestment environment.

• Both economic and socialinfrastructures are not yetadequately developed.

• There is lack of robust financialsector to support the expansionprograms of the existinginvestments.

5.8.2 Sources of Information

The study reveals that most investorswere informed on investmentopportunities in Zanzibar throughGovernment agencies such as ZIPA,

ZAFREZA and ZFPA (34.0 percent),word of mouth (18.0 percent), businessassociates (17.0 percent), local mediaand competitors (13.0 percent), donorcommunity (3.0 percent), and othermeans (15.0 percent) (Table 5.8.3).Since government information sourcesare mostly used by investors, it isimportant for Government to ensure

34

Table 5.8.3 Sources of Information for Investors Initial Investment Decision

Source of Information Number of respondents PercentageGovernment 69 34.0Word of mouth 36 18.0Business associates 34 17.0Competitors 13 6.5Local media 13 6.5Donor community 6 3.0Others 30 15.0Total 201 100.0

availability of investment data andinformation to potential investors.

5.8.3 Promotion of Investment

Despite the fact that here have beenimprovements in the investmentenvironment in Zanzibar, the followingare areas identified by investors thatneed further attention;• The Government to aggressively

market Zanzibar as a prime touristdestination. Promotion is costlythus the Government should setaside funds to undertake this vitaltask. The private sector is not

efficient enough to intensifypromotional activities partly dueto lack of resources. Thus there isa need to enhance the private-public partnership in order tomarket investment opportunitiesavailable in Zanzibar.

• Weaknesses in the taxationsystem that include multiplicity oflicenses, corruption and few fiscalincentives.

• The banking system is notdeveloped enough to supportfinancial needs for investments,which are vital to spur moreinvestments.

5.8.4 Employment (Staff DevelopmentPlan and Gender Considerations)

The study observed that most of thecompanies have staff developmentplans for local employees. Out of 126respondents, 60.0 percent have staffdevelopment plans and the remaining40.0 percent have none. Low level ofeducation among the employees hasbeen cited to be a problem and thus,

compelling investors to recruit labourfrom other countries. However, thegovernment has undertaken variouseducation programs that aim atimproving the level and quality ofeducation in Zanzibar. In the case ofgender consideration, there was nopriority on gender for most investorscovered in the survey when they recruitnew staff. In this respect, much isneeded to be done to improve genderbalance in the employment sector.

5.8.5 Sourcing of Raw Materials

The study attempted to identify source

of inputs in order to establish linkagesinvestors create to the Zanzibareconomy (Table 5.8.7).

It was revealed that about 51.0 percentof investors obtain more than 75.0percent of their raw materials fromdomestic sources, while 12.0 percentobtain between 26.0 and 74.0 percentand 37.0 percent of investors sourcebetween 0.0 and 25.0 percent. Thisindicates that consumption of domesticraw materials is higher than thoseimported from abroad.

5.8.6 Other Government Policies

The study identified other impedimentsto investments in Zanzibar. Theseinclude multiplicity of taxing authoritiesnamely the Zanzibar Revenue Board(ZRB), Tanzania Revenue Authority(TRA) and local Governmentauthorities. Thus, investors call for cleardemarcation of the roles of each of thelicensing authorities and harmonizelicenses they issue.

35

Table 5.8.7 Sourcing of Raw Materials from Tanzania (Percentage of total)

0 – 25 percent 26 – 50 percent 51 – 74 percent > 75percentNo of Respondents 41 6 6 55Percent of Respondents 37.0 6.0 6.0 51.0

6.1 Introduction

This chapter addresses fundamentalissues raised in the survey andhighlights policy implications, whichmay serve as a challenge to policymakers, researchers and the academiccommunity.

6.2 Foreign Direct Investment(FDI) in Zanzibar

6.2.1 Magnitude of FDI

The total FDI in Zanzibar increased by14.6 percent to USD 182.9 million in2001 from USD 159.6 million recordedin 2000. This was result ofgovernment’s efforts to put in place anenabling and conducive investmentenvironment by pursuing soundeconomic policies. To increase the flowof FDI, the Government is urged to:• Speed up the establishment of a

single autonomous investmentorgan that will provide allinvestors’ necessary requirementsincluding issues related to land,immigration, business licenses,exemptions, and other investmentrelated services. Such measureswill get rid of unnecessarybureaucratic procedures.

• Provide more incentives for

private investments.• Establish legal framework that

will guarantee protection ofinvestor’s properties andinterests.

• Improve the quality of economicand social infrastructure.

• Promote growth of exportsthrough establishment of EPZ.

6.2.2 FDI by Sector

The survey results show that 60.0percent of foreign private investmentsare concentrated in the Wholesale andretail trade sector which is largelydominated by tourism sub-sector. Thisis however a very fragile sub-sectorwhose earnings are affected by adverseevents such as terrorist threats. TheGovernment thus needs to concentrateon attracting foreign privateinvestments to other areas such as agro-based processing industries, fishing andextraction of oil. Further, there is a needfor the Government to identify areas ofinvestment that have higher multipliereffect and also emulate from successfulcountries such as Mauritius (Box 6.2.2).

6.2.3 FDI by Country of Origin

The survey revealed that investmentsfrom United Kingdom, Italy, and Spain,all being OECD countries, dominated

CHAPTER SIX

MAIN FINDINGS AND POLICY IMPLICATIONS

36

Box 6.2.2 Mauritius Best Practice in Diversification

Mauritius has had a wealthy class of sugar plantation owners who eventually wanted to diversify their investmentsafter ten years of independence. In 1970s, the country established export processing zone but had little effect on thelevel of foreign private investments largely due to strict exchange controls, protective tariffs, deficit spending andpolitical instability. In the early 1980s Mauritius implemented macroeconomic reforms by removing currencycontrols and other hindrances. This led to influx of investors from Hong Kong, Taiwan and South Africa whoinvested heavily in international hotels and tourist facilities of international standards. The Mauritius peoplemanaged to emulate entrepreneurial and other skills from foreign investors, which they then used to boost theirtourism industry.

As a result the Mauritius economy was transformed from sugar dependent to a balanced economy in which textiles,tourism and sugar became the pillars of the economy.

Source: Adopted from Obwona et al (2002)

FDI stock in Zanzibar. On averageinvestments from these three countriesaccounted for 65.0 percent of the totalstock compared with investments fromnon-OECD countries, which on averageaccounted for only 1.6 percent of totalFDI stock each. The dominance of thethree countries (geographicalconcentration) calls for the need toadopt diversification measures in orderto minimize risks associated withpossible shocks that may emanate fromthe few countries investing in Zanzibar.

6.2.4 FDI by Region

The survey has revealed that 49.2percent of total stock in 2001 wasconcentrated in Urban West and 31.3percent in North Unguja region. SouthUnguja region absorbed 18.9 percentwhile North and South Pemba regionstogether had less than 1.0 percent of thetotal stock. The Government shouldadopt promotion strategies and providemore incentives for investments into thedisadvantaged regions. However, theseshould be supported by improvement ofbasic economic and socialinfrastructures in these regions.

6.2.5 FDI by Mode of Financing

The study revealed that equity was thedominant source of investment financingin 2000 and 2001. The stock of equityinvestments amounted to USD 104.4million in 2000 and USD 115.4 million in2001 accounting for 68.9 percent and66.0 percent of total FDI respectively. In2001 long-term inter-company loansaccounted for 24.5 percent of total stock,while supplier’s credit and short-terminter-company loans accounted for 6.1percent and 4.6 percent respectively. Theuse of more equity than debt to financeinvestment is highly recommended as itimplies that foreign private companiesfinance most of their assets using theirown resources and thus the level of

private external debt is low.

6.2.6 Rate of Returns on ForeignEquity

The survey reveals that with theexception of Wholesale and retail trade,and Finance, insurance and real estatesector all other sectors recorded eitherzero or negative rate of return.Transport, storage and communicationsector was the worst which registerednegative returns for 2000 and 2001.

6.3 Investors’ Perceptions

6.3.1 Macroeconomic and FinancialPolicies

Macroeconomic factors were generallyrated favourable. However, theGovernment needs to improve theperformance of macroeconomicfundamentals especially trade relatedpolicies. On the other hand, theGovernment should address investors’concerns regarding to fiscal policyparticularly the multiplicity of taxes.Also, the Government needs to addressthe issue of non-availability of long-term financing for investors and alsoencourage establishment of specializedfinancial institutions for housing(mortgages), micro-financing, and ruralfinance.

6.3.2 Political and GovernanceFactors

Political stability was noted to beimproving especially after the signingof political accord (MUAFAKA)between the ruling party (CCM) and themain opposition party (CUF). Inaddition, the areas that need furtherattention include bureaucracy,transparency in the legal system andcorruption. The Government’s initiative

37

to establish one-stop investment centrewill be a solution to these concerns.

6.3.3 Labour Factors

Investors were concerned withinadequate availability of skilled labour.The Government is advised to put moreefforts on the provision andimprovement of technical educationand vocational training programmesand allocate adequate resources for suchprogrammes. However, theGovernment is challenged to considerintroducing specific policies that willmotivate investments in local human

resource development.

6.4 Other Corporate SocialResponsibilities

The presence of superior professionalservices is important for creatingconducive environment for investment.The Government is advised to put inplace policies that will encourageprivate sector to invest in variousservices such as insurance, accountingfirms, legal support and other socialservices.

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7.1 Introduction

This chapter examines theimplementation of the Private CapitalFlows project and assesses the extent towhich the objectives have been met andidentifies implementation gaps(methodological and analytical) thatwere observed and provides somelessons learnt from the survey. It alsoproposes a strategy for the way forward.

7.2 Assessment of the Results inRelation to the Objectives

7.2.1 Objective One

Compile, design and maintain acomprehensive database on privatecapital flows.

The following have been achieved:• A computer Oracle-based

software, which is more user-friendly and capable of handlinglarger volume of data, wasinstalled and used in compilingdata for Zanzibar.

• Database capable of storing andfacilitating the processing andanalysis of data on private capitalflows has been established.

• A more realistic baseline data onForeign Direct Investment andPortfolio Investment stocks for2000 and 2001 and flows for 2001has been established.

• A reliable investors’ register hasbeen put in place comprising ofbasic and fundamentalinformation on investors.

7.2.2 Objective Two

Establish a sustainable institutionalframework and capacity in undertaking

regular private capital flows surveys byinvolving both private and publicsectors:

The following have been achieved:• Putting in place a system and

institutional framework byinvolving institutions such as theZanzibar Investment PromotionAgency (ZIPA), the Office of theChief Government Statistician(OCGS) and the Bank ofTanzania, which monitors foreignprivate capital flows in Zanzibar.

• Building capacity of theparticipating institutions byexchanging experiences and useof teamwork approach. Zanzibarhas now a reliable capacity thatwill undertake future annualsurveys with a view of updatingdata base on private foreigncapital flows.

• Information gathering system andinstruments that facilitategathering of vital information andfactors related to investments inZanzibar and Tanzania in generalhas been established.

7.2.3 Objective Three

Provide information for appropriatemacroeconomic policy formulation andinvestment promotion purposes.The following have been achieved:• The survey results have provided

information, which are vital inputfor reviewing and formulation ofmacroeconomic, investmentpromotion and social policies.

• The report provides a reliablesource of information toprospective investors, and otherstakeholders in need ofinvestment information inZanzibar.

CHAPTER SEVEN

ASSESSMENT OF THE SURVEY AND THE WAY FORWARD

39

7.2.4 Objective Four

Strengthen and foster public-privatedialogue so that they can work togethertowards achieving private sector-ledgrowth for mutual benefit.

The following have been achieved:• Sensitization workshop, which

was conducted in February 2003,prompted dialogue between thepublic and private sectors onissues of investment policy andenhanced the awareness of theprivate sector on usefulness andneed of having information oninvestments.

• Cooperation with private sectorhas been enhanced by ensuringthat privacy of information ismaintained and hence minimizedthe fear of passing over theinformation collected from thesurveyed companies to theirbusiness competitors.

• Survey tools or instruments arenow in place to cater forinvestors’ perception on variouseconomic and social aspects.

• The survey and methodologyemployed deepened closer tiesbetween public sector officialsand private investors.

7.3 Identified gaps

Despite the achievements outlinedabove, there were several gapsidentified: • Private sector external debt was

not covered due to lack of data.Much of the information neededwas not obtained and theavailable data was fragmenthence the magnitude and type ofexternal debt position forZanzibar could not be established.

• Information on outflows ofprivate capital could not beobtained due to lack of data.

• It was observed that when

analyzing investment data bysectors, regions, mode offinancing and country source,there were notable statisticaldiscrepancy between change instock and actual inflows.

7.4 Lessons Learnt

The following are lessons learnt fromimplementation of the project.• Institutional coordination was

established between theinstitutions that participated inZanzibar and Tanzania Mainland,and DFI and MEFMI, whichenhanced sharing of technicalexpertise and resources.

• The top management of ZIPA,OCGS and BOT showed strongcommitment during theimplementation of the project.

• Creating awareness throughsensitization workshop and mediapublicity enhanced co-operationwith the private sector. As a resultthe response rate in Zanzibar,although the survey was beingcarried out for the first time, was95.0 percent.

• Physical visits and directinterviews in conducting thesurvey enhanced co-operationwith the private sector andimproved quality of reporting aswell as compliance.

• Technical support received fromDFI, MEFMI and the Bank ofTanzania at the designing andimplementation stages of theproject helped to build localcapacity and improved the qualityof analysis.

• Financial support from theGovernment of Denmarksupplemented the domesticresources and enabled smoothimplementation of the project.

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7.5 The Way Forward

The following strategies arerecommended as a way forward:• Ensure that the Government

provides adequate funding, toZIPA and OCGS to facilitateundertaking of annual foreignprivate capital flows survey andthat donor funding should onlysupplement shortfalls in localresources.

• Undertake sample surveys thattarget both locally and foreignowned private companies tocollect data/information onprivate capital flows for years2002 through 2004.

• Ensure availability of informationon private sector external debt.

• Enhance partnership betweenprivate and public through acontinuous process of dialogueand information sharing.

• Strengthen institutionalparticipation and coordination forfuture monitoring of privatecapital flows.

• Ensure sustainability of humancapacity within respectiveinstitutions to monitor privatecapital flows in Zanzibar.

• Review and updating the currentinvestors’ register to include newforeign and local investments.

• Review the questionnaire toencompass new features and addperception questions particularlyon domestic linkages.

• Integrate the developedmonitoring system for privatecapital flows in the nationalmonitoring framework so that thesystem can be streamlined andbecome part and parcel of the datacompilations of ZIPA and OCGS.

• There is a need of enhancingawareness to stakeholders inproviding reliable statisticalinformation.

• There is need to enhancetechnical capacity of the staff whoare involved in the survey.

• There is also a need ofestablishing a system of obtainingdata directly from investors (nonsurvey methodology), which mayreduce cost and time of survey.

• There is a need to ensure that theresults of the survey aredisseminated to a wide range ofstakeholders to encourage sharingof information.

41

Bank of Tanzania (1998), Foreign Exchange Circular no. 6000/DEM/EX.RE/58,September 1998.

Bank of Tanzania (Various), Economic and Operations Report, Dar es Salaam. Bank of Tanzania (Various), Quarterly Economic Bulletin, Dar es Salaam

Mbekeani, K and J. Salinger (1999), Promoting Foreign Direct Investment in LabourIntensive and Manufacturing Exports in Developing Countries, CAERDiscussion Paper No. 42. Harvard Institute for InternationalDevelopment, July 1999.

Obwona, M. and P. Lucie (2000), Foreign and Local Investment in east Africa:Interactions and Policy Implications”. African Economic PolicyDiscussion Paper no. 67, December 2000.

RGZ (2002), The Zanzibar Government Budget Speech. RGZ (2002), Zanzibar 2020 Vision.RGZ (2002), Zanzibar Poverty Reduction Plan, 2002.RGZ (2003), Agricultural sector policy.RGZ (2003). Public Expenditure Review.RGZ (2004), Zanzibar Trade Policy, 2004.RGZ (2004), The Challenges of Globalization and Poverty Reduction.RGZ (Various), Zanzibar Economic Bulletin. RGZ (2003), Zanzibar Investment Policy, 2003.RGZ (1986), Zanzibar Investment Act, 1998.

Rodrik, Dani (1995), Trade Strategy, Investment and Exports: Another Look at EastAsia, Columbia University, May 1995.

UNCTAD (2003), World Investment Report. URT (2001), Tanzania Investment Report, 2001.

REFERENCE

42

It is important to be familiar with thefollowing list of terminologies and therelationship between the terms forbetter understanding of the report.

Balance of Payments (BOP) is anaccounting statement designed toprovide, for a specific period of time, asystematic record of an economy'stransactions with the rest of the world.BOP refers to transactions betweenresidents and non-residents for a periodof one year. It is a statistical statementthat brings together inflows andoutflows of transactions classifiedunder appropriate components, in twoaccounts – the current account andcapital and financial accounts. BOPdata are therefore concerned withtransactions between residents and non-residents and NOT with the currency oftransaction. Typically, a transaction inforeign currency between two residentsof any country would not be considereda BOP transaction.

Book values: Value of an asset asrecorded in the books of account of anorganization, usually the historical costof the asset reduced by the amountswritten off for depreciation. If the assethas ever been revalued, the book valuewill be the amount of the revaluationless amounts subsequently written offfor depreciation. Except at the time ofpurchase of the asset, the book valuewill rarely be the same as the marketvalue of the asset.

Dividends are income on equity.

Equity means shares in companies, andequivalent ownership interest inunincorporated enterprises. ForeignDirect Equity Investment denotesownership of 10% or more of theordinary shares, voting power, or

equivalent in an enterprise, by someoneresident in another economy.

Estimated - Market value: Marketvalues or market prices are used forvaluing transactions. This is the amountof money that a willing buyer pays toacquire something from a willing seller,when such an exchange is one betweenindependent parties and on the basis ofcommercial considerations only. This isthe best measure of economic value.The actual price at which transactionsare recorded in the books of thetransactors will be the market price – ora close approximation thereof.However, these transactions may bebetween related companies – whichcould impact on the “commercialconsideration” of market values.Related companies in differentcountries may charge transfer prices toeach other (different to what they wouldhave charged independent parties) so asto shift profits between enterprises andcountries, and minimise taxes. Marketvalues are usually difficult to estimate.The Preferred techniques of calculatingmarket values (particular to equity)include stock exchange valuations oflisted companies, auditor’s estimates ofmarket values, a recent purchase or salebetween directors of the company,Director’s estimate, FinancialManager’s estimate, and accountant’sestimate.

Country of Origin (of investment) isassociated with the residence of theshareholders where main decisions onthe operations of a company are made.

Financial Instruments: These areinstruments/special documents that areused to facilitate financial transactionse.g. treasury bills, bonds, debentures,stocks etc.

APPENDICES

APPENDIX 1: CONCEPTS AND DEFINITIONS

43

Flow is a change in stock position and ittakes place during a period of time.Private Capital Inflows can be seen asan increase in internationalindebtedness (liabilities) to a country’sprivate sector during a specified periodof time. This constitutes foreigninvestment in an enterprise. CapitalOutflows can similarly be seen as anincrease in country’s Investment(Assets) abroad. This also impliesInvestments abroad by a domesticenterprise. Categories: Flows fall underthree major categories namely,transactions, holding gains or loses andother changes in Assets. Transactionsare economic exchange involving twoeconomic entities (e.g. a foreign and alocal enterprise). It may be worth notingthat all transactions are flows but not allflows are transactions. Holding gainsand loses (also known as valuationchanges or capital gain/loses) are thosetypes of flows that involve change instock position that is due to pricechanges of an asset, but not a result ofeconomic interactions. These are typesof flows which are not transactions thusnot recorded in BOP.

Foreign Direct Equity Investment(FDEI) denotes ownership of 10% ormore of the ordinary shares, votingpower, or equivalent in an enterprise, bysomeone resident in another economy.

Foreign Direct Investment (FDI) isdefined as a case where a resident entityin one economy (creditor) acquireslasting interest in an enterprise inanother economy (recipient) withsignificant degree of influence. UsuallyFDI is in the form of ownership ofmeans of production like factories orequity share including equity purchase,reinvested earnings and inter-companyloans and debt transactions. FDI in thecensus form is obtained by summingup: new equity investment Q5 plusreinvested earnings in Q6 plus the sumof {shareholder and intra-company loan

(long term) + shareholder and intra-company borrowing (short-term) +supplier's credit from related company(short term)} in Q8.

Foreign Portfolio Equity Investment(FPEI) is defined as a case where ashareholder owns less than 10% ofequities in an enterprise.

Foreign Portfolio Investment (FPI) arepurely financial assets, which include,Foreign Portfolio Equity Investment(FPEI), Investments in Bonds, Moneymarket instruments and Financialderivatives other than the itemsincluded in the definition of foreigndirect investment.

International Standard IndustrialClassification (ISIC) is a standardisedway of dis-aggregating economicactivities for international datacomparison purposes. For the currentcensus, this has been modified withfurther dis-aggregation to better coveractivities in Tanzania and remainsconsisted with international norms.

Net asset values are the differencebetween assets and liabilities.

Non-equity means all other financialinstruments including loans, trade creditand supplier’s credit (for goods andservices), bonds, debentures, notes,money market instruments, shareholderand inter-company loans, arrears ofdebt or interest, and deposits.

Regional Classifications: A way todefine geographical distribution ofeconomic activities, enterprises andsubsidiaries in Tanzania. e.g. Dar esSalaam, Arusha, Mwanza, Mbeya,Tanga etc.

Reinvested (or retained) earnings(profits) These are the direct investor’sshare (calculated as a proportion ofdirect equity held) of that part of the

44

earnings (after tax on earnings) that arenot distributed as dividends by thedirect investment enterprise, togetherwith earnings of branches that are notremitted to the direct investor. This is acomponent of FDI.

Related Companies: Related companieswith a direct investment enterprise(10% of ordinary shares) aresubsidiaries (a non-resident ownerowns more than 50% of the shares) andassociates (50% or less). Branches(unincorporated enterprises whollyowned by non-residents).

Resident, Non Resident and country ofResidence: A resident is any individual,enterprise, or other organisationordinarily residing in Tanzania. In otherwords, its centre of economic activity isin Tanzania. All other entities areregarded as non-residents. Forstatistical purposes, an individual wholives in Tanzania for more than a year isconsidered to be a resident, regardlessof the individual's citizenship ornationality. An enterprise incorporatedin Tanzania is considered a resident ofTanzania irrespective of the domicile ofthe owners of the enterprise. A branchof a foreign company operating inTanzania for more than a year is treatedas a local company.

Shareholder and inter-company loans /borrowing: This is the borrowing orlending of funds (among relatedcompanies) between the direct investor(non-resident), and the directinvestment enterprise (resident). Thesetransactions can create or dissolveinvestment as well as maintain, expandor contract it.

Stocks refers to position at a point intime (e.g. end of year position). Stockscan be divided into assets and liabilities.

Supplier’s Credits: These include tradecredits. On one hand they are claims

from the direct extension of credit bysuppliers of goods and services tobuyers, while on the other hand they areliabilities of buyers of goods andservices. In addition this conceptinclude advance payments for work inprogress, or to be undertaken,associated with such transactions. Mostare short term.

Voting (Powers) rights: This relates tothe objective of obtaining a lastinginterest in an enterprise resident inanother economy. In the case of directinvestment, a 10% or more ownershipof the ordinary shares or voting rights inan enterprise is considered sufficient toempower the direct investor to have asignificant influence over the keypolicies and management of the directinvestment enterprise.

Direct Investment (Foreign directinvestment) is defined as internationalinvestment by a resident entity in oneeconomy ("direct investor") in anenterprise resident in another economy("direct investment enterprise"), madewith the objective of obtaining a lastinginterest in the direct investmententerprise. The lasting interest impliesthe existence of a long-term relationshipbetween the direct investor and thedirect investment enterprise and asignificant degree of influence by thedirect investor on the management ofthe enterprise. Direct investmentinvolves both the initial transactionbetween the two entities and allsubsequent capital transactions betweenthem and among affiliated enterprises,both incorporated and unincorporated.

Direct investor is an individual, anincorporated or unincorporated private orpublic enterprise, a Government, or agroup of related enterprises (incorporatedor unincorporated) or individuals, that hasa direct investment enterprise (that is, asubsidiary, associate or branch) operatingin economy other than the economy of

45

residence of the direct investor.

Direct investment enterprise is anincorporated enterprise in which adirect investor owns 10 per cent or moreof the ordinary shares or voting power,or an unincorporated enterprise inwhich a direct investor has equivalentownership. Direct investmententerprises comprise: subsidiaries

(enterprises in which a non-residentinvestor owns more than 50 per cent);associates (enterprises in which a non-resident investor owns between 10 and50 per cent); branches (unincorporatedenterprises wholly or jointly owned by anon-resident investor) that are eitherdirectly or indirectly owned by thedirect investor.

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APPENDIX 2

STATISTICAL TABLES

47

Table 1 Stock of FDI by Sector and Mode of Financing for 2000

Values in USD MillionSector Equity Long-term Short-term Suppliers Total

creditWholesale and retail trade and catering 77.8 22.8 6.9 0.1 107.6Utilities 0.0 0.0 0.0 0.0 0.0Transport, storage 15.6 15.1 0.0 0.0 30.7Manufacturing 5.5 0.7 0.0 1.3 7.5Financing, insurance, real estate 2.6 0.0 0.0 0.0 2.6Community, social and personal services 2.5 0.0 0.0 0.0 2.5Construction 0.4 0.0 0.0 0.0 0.4Agriculture, hunting, forestry 0.2 0.1 0.0 0.0 0.3Total 104.4 38.7 6.9 1.4 151.5

Table 2 Stock of FDI by Sector and Mode of Financing for 2001

Values in USD MillionSector Equity Long-term Short-term Suppliers Total

creditWholesale and retail trade and catering 88.3 27.9 5.9 0.2 122.3Utilities 0.0 0.0 0.0 0.0 0.0Transport, storage 15.3 14.1 0.0 0.0 29.4Manufacturing 5.2 0.7 0.0 10.5 16.4Financing, insurance and real estate 3.4 0.0 0.0 0.0 3.4Community, social and personal services 2.6 0.0 0.0 0.0 2.6Construction 0.5 0.0 0.0 0.0 0.5Agriculture, hunting, forestry 0.2 0.1 0.0 0.0 0.3Total 115.4 42.8 5.9 10.7 174.7

Table 3 Flows of FDI by Sector and Mode of Financing for 2001

Values in USD MillionSector Equity Long-term Short-term Suppliers Retained Total

related related credit earningscompany company related

companyWholesale and retail trade and catering 0.5 0.8 0.2 0.1 -0.1 1.5Agriculture, hunting, forestry 0.0 0.0 0.0 0.0 0.0 0.0Community, social and personal 0.0 0.0 0.0 0.0 0.0 0.0Construction 0.0 0.0 0.0 0.0 0.0 0.0Financing, insurance, real estate 0.0 0.0 0.0 0.0 0.0 0.0Manufacturing 0.0 0.0 0.0 0.0 0.0 0.0Transport, storage 0.0 0.0 0.0 0.0 0.0 0.0Utilities 0.0 0.0 0.0 0.0 0.0 0.0Total 0.5 0.8 0.2 0.1 -0.1 1.5

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Table 4 Stocks of Portfolio Investments by Country of Origin, 2000 and 2001

Values in USD MillionCountry 2000 Percent Country 2001 PercentItaly 0.2 55.3 Italy 0.2 45.8Sweden 0.1 24.9 Thailand 0.1 20.7United Kingdom 0.0 10.7 United Kingdom 0.0 10.1Germany 0.0 2.4 Sweden 0.0 6.9Switzerland 0.0 0.0 Switzerland 0.0 0.1Spain 0.0 0.0 Germany 0.0 2.3USA 0.0 0.0 Belgium 0.0 0.9OECD Countries 0.3 93.3 OECD Countries 0.3 86.8

Kenya 0.0 6.7 China 0.0 0.0Kenya 0.0 8.9Bahrain 0.0 4.3

Non-OECD Countries 0.0 6.7 Non-OECD Countries 0.1 13.2

Total 0.3 100.0 Total Stock 0.4 100.0

Table 5 Stock of FDI by OECD and Non-OECD Countries, 2000 and 2001

Values in USD Million2000 2001

Country Amount Percentage Amount PercentageOECD countries 118.3 78.3 139.5 79.8Australia 0.1 0.1 0.0 0.0Austria 0.1 0.1 0.1 0.1Belgium 0.2 0.2 0.3 0.2Denmark 0.9 0.6 0.9 0.5France 0.3 0.2 0.4 0.2Germany 0.4 0.2 0.3 0.2Greece 0.4 0.3 0.4 0.2Italy 41.7 27.5 36.2 20.7Japan 0.4 0.3 0.4 0.2EU 1.3 0.9 10.5 6.0Netherlands 0.1 0.1 0.1 0.1Norway 0.5 0.3 0.5 0.3Spain 0 0.0 20.6 11.8Sweden 0.6 0.4 0.7 0.4Switzerland 9.3 6.1 9.3 5.3United Kingdom 59.8 39.5 56.6 32.4USA 2.2 1.5 2.2 1.2

Non-OECD countries 33.0 21.9 35.3 20.2Bahamas 4.1 2.7 3.6 2.1Bahrain 0 0.0 1.5 0.8Ethiopia 0.4 0.3 0.5 0.3Kenya 1.6 1.1 1.7 1.0Mauritius 0 0.0 0 0.0Oman 3.2 2.1 4.6 2.6Rwanda 0.4 0.3 0.4 0.2South Africa 9.2 6.1 8.3 4.8United Arab Emirates 13.9 9.2 14.5 8.3Zambia 0.2 0.1 0.2 0.1Total 151.3 100.0 174.8 100.0

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Table 6 Flows of FDI by OECD and non-OECD Countries, 2000 and 2001

Values in USD Million2000 2001

Country Amount Percentage Amount PercentageTotal OECD countries 5.6 99.0 0.8 53.5Australia 2.5 43.7 0.0 1.2Austria 0.4 6.5 0.0 0.0Belgium 0.0 0.0 0.0 0.0Denmark 0.0 0.0 0.0 0.0Germany 0.0 0.0 0.0 0.0Greece 0.0 0.7 0.0 0.0Italy 0.0 0.0 0.3 19.2Japan 0.0 0.0 0.0 0.1Netherlands 0.5 13.0 0.0 0.0Norway 0.0 0.0 0.0 0.0Spain 0.0 0.0 -0.1 -5.0Sweden 0.0 0.0 0.1 7.0Switzerland 0.0 0.0 0.4 24.9United Kingdom 2.0 34.7 0.0 3.2USA 0.0 0.4 0.0 2.9Total Non-OECD countries 0.1 1.0 0.7 46.5Bahamas 0.0 0.3 0.0 -0.1Ethiopia 0.0 0.0 0.0 0.0Kenya 0.0 0.0 0.0 0.2Oman 0.0 0.1 0.3 22.3Rwanda 0.0 0.0 0.0 0.0South Africa 0.0 0.0 -0.0 -2.5United Arab Emirates 0.0 0.7 0.4 26.5Zambia 0.0 0.0 0.00 0.0Grand Total 5.7 100.0 1.40 100.0

Table 7 Flows of Portfolio Investments by Country of Origin, 2000 and 2001

Values in USD MillionCountry 2000 Country 2001

Amount Percentage Amount PercentageOman 0.01 100.0Total 0.01 100.0 Total 0.0 0.0

This method entails the use of weighted average mean to ascertain where the majority ofopinions lie. This involved assigning weights as follows: –2 for “most negative”, 0 for“no effect” and 2 for “most positive”. Weighted averages were then multiplied by –1 andadded to 3 to make the graph easy to read and interpret.

Calculating weighted averages

Weighted average/mean

If the sample of respondents can be grouped into clear categories [such as IP respondentswho identified positive effect, no effect, negative effect] then weighted average ofresponse was used to get where the majority of opinion lies.Weighted averages for presentation of survey data entails categorization as shown below.

Category Identity Number of respondents Strong positive effect 1 x1Positive effect 2 x2No effect 3 x3Negative effect 4 x4Strong negative effect 5 x5

Weighted average = (1*x1 + 2*x2 + 3*x3 + 4*x4 + 5*x5) / (x1 + x2 + x3 + x4 + x5)

Then the weighted averaged are consolidated for all sub factors to arrive at the weightedaverage means by multiplying by –1 and adding to 3.

APPENDIX 3

METHOD FOR CALCULATING WEIGHTED AVERAGE FORINVESTORS’ PERCEPTION

50

Economic and Financial Factors Weighted Average (Weighted Average *-1) + 3

Interest rates U u1

Inflation V v1

Depreciation of the domestic currency W w1

Corporate/ other tax burden X x1

Fiscal policy Y y1

Composition of Government spending Z z1

Confidential

Office of Chief Government Statistician Bank of Tanzania Zanzibar Investment Promotion AgencyP.O.Box 2321 Zanzibar branch P. O. Box 2286, ZanzibarZanzibar P.O.Box 568, Zanzibar Tel: 255 24-2233026 Tel: 255 24-2231869 Tel: 255 24-2230803 255 24-2237858Fax: 255 24-2231742 255 24-2232362 Fax: 255 24-2232737 E - mail: zanstat@ zanlink.com Fax: 255 24-223 0415 E - mail: zipa@zanzinet.com

255 24-2232140 zipaznz@zanzinet.comWebsite: www.bot-tz.org Website: www.investzanzibar.com

FORM TYPE: BOPZ/1/2002COMPANY REFERENCE NUMBER:…………………….. (for internal use only)DUE DATE FOR RETURN: ____/_____/________

PART A: GENERAL INFORMATIONALL RESPONDENTS MUST COMPLETE THIS PART.

Date completed:Company name:Name and position of person completing this return:Company Address:

P. O. Box

District Area Street/Plot

Tel: Fax: E-mail:

Website:

Please give details of an alternative person whom we may contact in case we have any questions.

Date of Establishment Date of Commencing Operations

PLEASE READ THIS FIRST

Purpose of surveyThis form collects information on assets and liabilities of your enterprise (or group) in theRepublic of Tanzania. This information will be used by the Bank of Tanzania (BOT), Zanzibar

APPENDIX 4:

QUESTIONNAIRE

QUESTIONNAIRE FOR THE SURVEY OF COMPANIES WITHLOCAL AND FOREIGN ASSETS AND LIABILITIES

51

Investment Promotion Agency (ZIPA), Office of the Chief Government Statistician (OCGS)and the Government in balance of payments compilation, investment promotion and nationalpolicy formulation.

FocusYou are required to complete this form from the point of view of your transactions as a residentof Tanzania with other Tanzanian residents, or with non-residents (regardless of your or theirnationality, or currency of transaction). A resident individual, enterprise (whether incorporatedor a branch), or other organisation has its centre of economic activity in Tanzania for at least 1year (or with the intention of staying at least 1 year). All other entities are non-resident.

Collection AuthorityCompletion of this form is compulsory under section 22 Sub-section (1) and (2) of the ZanzibarInvestment Protection Act No. 9 of 1999 and section 47 sub-sections (1), (2) and (4), andsection 49 of Bank of Tanzania (BOT) Act of 1995. Failure to comply could result in legaland/or administrative action against non-compliance.

ConfidentialityInformation will be used only for statistical purposes, and be published in aggregated form.Data relating to individual organisations will not be made available to anybody outside theBOT, ZIPA or OCGS. Government officials failing to comply with confidentiality clause facesevere penalties including summary dismissal. This is in accordance with the Acts thatestablished BOT, ZIPA and OCGS.

EstimatesWhere possible, please use figures from your accounts. Un-audited data are perfectlyacceptable for this purpose. In cases where data is not readily available from your accounts,please provide careful estimates. We would rather have your best estimate than nothing!

Inapplicable questionsPlease do not leave blank spaces even where the question does not apply to you. So we knowwe do not need to follow up with you, please enter “n/a” in the appropriate box, or at the startof the question.

Due DatePlease complete this Questionnaire and return the original to BOT Zanzibar Branch, ZIPA orOCGS. Please keep the ‘Respondent Copy’ of the questionnaire for your own records.

Help AvailableBy its nature, this form must contain technical terms. If you have problems in completing thisform, please refer to notes attached at the end. Alternatively, contact BOT, ZIPA or OCGSofficials indicated below:

Amour Hamil Said Chiguma Fatma A. JumbeOffice of Chief Government Statistician Bank of Tanzania, Zanzibar branch Zanzibar InvestmentP.O. Box 2321, Zanzibar P.O. Box 568, Zanzibar Promotion AgencyTel: 255 24-2231869 Tel: 255 24-2230803 / 255 24-2232362 P. O. Box 2286, ZanzibarFax: 255 24-2231742 Fax: 255 24-223 0415 / 255 24-2232140 Tel: 255 24-2233026 E - mail: zanstat@ zanlink.co E-mail: info@hq.bot-tz.org 255 24-2237858

Website: www.bot-tz.org Fax: 255 24-2232737Fatma A. Jumbe E - mail: zipa@zanzinet.com

zipaznz@zanzinet.comWebsite: www.investzanzibar.com

THANK YOU IN ADVANCE FOR YOUR COOPERATION.

52

1. INDUSTRIAL CLASSIFICATIONPlease tick the main area(s) of economic activity of your enterprise and its subsidiaries inTanzania based on gross receipts. Wherever possible, companies are requested to completeand submit a separate questionnaire for each individual company within a group.

Industrial Classification Tick activities relevant for your company

Agriculture, hunting, forestry and fishing1a. Agriculture (Crops) 1b. Agriculture (Livestock)1c. Hunting and forestry1d. Fishing

Mining and quarryingManufacturing

3a. Agro-industry3b. Food and beverages3c. Machinery, motors and equipment3d. Chemicals and petroleum3e. Other manufacturing (specify)

Utilities4a. Electricity4b. Gas4c. Water

ConstructionWholesale and retail trade, catering and accommodation services

6a. Accommodation, tourism and Catering6b. Wholesale and retail trade

Transport, storage and communication7a. Transport and storage7b. Communication

Financing, insurance, real estate, and business services8a. Financing, insurance8b. Real estate8c. Other Business Services

Community, social and personal services9a. Education9b. Health9c. Media9d. Other Community, social and personal services

Activities not adequately defined (specify)

2 (a) SUBSIDIARIESPlease list any subsidiaries (or sub-subsidiaries) your enterprise has in Tanzania.

53

2(b). If possible, please supply data for each company in your group individually (i.e.Unconsolidated)

EITHER: I am supplying unconsolidated data for individual companieswithin the group

OR: I am supplying consolidated data for the whole group of companieslisted in Question 2 (a)

3. BRIEFLY DESCRIBE YOUR ENTERPRISE’S MAIN ACTIVITYAND PRODUCTS.

FILTERING FOR RELEVANT QUESTIONS TO YOURENTERPRISE.

The chances are that not all questions on this form will be relevant to you. To help youdecide which parts you need to fill-in, please answer the following filtering questions.Please note that ALL RESPONDENTS MUST COMPLETE PART C.

Filtering Question Yes No1 Do resident and/or Non-Resident enterprise or individuals hold shares

(equity) in your enterprise? If Yes, Please complete PART B questions 4through 7 as relevant.

3 Does your enterprise borrow from Resident and/or Non-Residententerprise or individual? If Yes, please complete PART B question 8.Please complete Annex Tables with respect to any Arrears ONLY ifapplicable.

4 Is your Enterprise involved in any international transaction in servicesand income with Non-Resident (e.g. through wage, salaries). If Yes,please complete PART B question 10.

PART B: INVESTMENT IN THIS ENTERPRISE DURING 2000 AND 2001

FOR PART B, PLEASE REPORT ALL VALUES IN TZS OR USD, AND IN UNITSPlease TICK one currency you will use in completing this part, and refer to the attached table of exchangerates to assist with your calculations.

TZS USDE.g. please report TEN MILLION IN UNITS, AS 10,000,000 rather than as 10, or 10m.

4. STOCK OF EQUITY IN YOUR COMPANYFor each group below, please list ownership stake in terms of book value (shareholderfunds) of shares or voting rights, grouped by the country of residence/multilateralorganisation. (Data on authorized and issued shares at historical cost plus share premiumreserves, retained earnings, and any other reserves should be readily available fromcompany financial statements):

4a. Resident and Non-resident investors each owning 10% or more of thetotal equity in your company

Country of residence/ Ownership stake (shareholding)Multilateral Organisation As at 31 Dec 2000 As at 31 Dec 2001

54

Book Value % of total Book Value % of total shareholding shareholding

1.2.3.4.5.Tanzania

Total 100% 100%

4(b) Resident and Non-resident investors each owning less than 10% of thetotal equity in your company

Country of residence/ Ownership stake (shareholding)Multilateral Organisation As at 31 Dec 2000 As at 31 Dec 2001

Book Value % of total Book Value % of total shareholding shareholding

1.2.3.4.5.Tanzania

Total 100% 100%

5. ESTIMATED MARKET VALUE OF YOUR COMPANYIf you were to sell your company on the market for commercial considerations only, howmuch would you estimate its value to have been at 31 December 2000, and at 31December 2001?(There are several methods for approximation. If you have an auditor, you can base it on your auditor’sestimate. If you do not have an auditor, ask your accountant or financial manager, or use a director’sestimate. You may base it on a commercially motivated sale between company directors as close aspossible to the reference period. Alternatively, you could compare it to a trade for a similar sized companyin a similar region or line of business.)

As at 31 Dec 2000 As at 31 Dec 2001Estimated Market Value

6 (a). PURCHASE AND/OR SALES OF YOUR COMPANY’S SHARES BYRESIDENTS AND NON-RESIDENTS WITH EQUITY HOLDINGSOF 10 % OR MORE DURING 2000 and 2001

Country of residence/ Transactions in shares by non-residents in your companyMultilateral Organisation During 1 Jan to 31 Dec 2000 During 1 Jan to 31 Dec 2001

Purchases Sales Purchases Sales1.2.3.4.5.Tanzania

55

6 (b). PURCHASE AND/OR SALES OF YOUR COMPANY’S SHARES BYRESIDENTS AND NON-RESIDENTS WITH EQUITY HOLDINGSOF LESS THAN 10% DURING 2000 AND 2001

Country of residence/ Transactions in shares by non-residents in your companyMultilateral Organisation During 1 Jan to 31 Dec 2000 During 1 Jan to 31 Dec 2001

Purchases Sales Purchases Sales1.2.3.4.5.Tanzania

7. INCOME ON EQUITY FOR YOUR COMPANYFor Balance of Payments compilation purposes, please estimate income on equity foryour enterprises in Tanzania, by working through the following table.

During During 1 Jan – 31 Dec 2000 1 Jan – 31 Dec 2001

7.1. Net Profit/loss (After taxes)7.2. Dividends or profits paid to non-resident

investors each with shareholdings of 10% or more7.3. Dividends or profits paid to non-resident investors

each with shareholding of less than 10%7.4. Dividends or profits paid to residents7.5. Total retained earnings (= 7.1 – 7.2 – 7.3 – 7.4)

8. YOUR BORROWINGPlease complete Tables 8a through 8e if you have any active loans (local or foreign). Ifyou have created any Arrears, please complete Annex Tables with respect ONLY toforeign Loans.

8(a) STOCK OF BORROWING EXCLUDING ARREARSTOTAL STOCK as at 31 Dec 2000 TOTAL STOCK as at 31 Dec 2001

Long-term borrowing (original maturity greater than 12 months)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder & Inter-

Company borrowingOther with Unrelated companiesShort-term borrowing (original maturity 12 months or less)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder and Inter-

Company borrowingSupplier credits from

Related companiesSupplier credits from

Unrelated companiesOther from unrelated

56

8(b) DISBURSEMENTS DURING THE YEARDuring 1 Jan – 31 Dec 2000 During 1 Jan – 31 Dec 2001

Long-term borrowing (original maturity greater than 12 months)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder & Inter-Company borrowingOther with Unrelated companiesShort-term borrowing (original maturity 12 months or less)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder and Inter-

Company borrowingSupplier credits from

Related companiesSupplier credits from

Unrelated companiesOther from unrelated

8(c) PRINCIPAL REPAYMENT DURING THE YEARDuring 1 Jan – 31 Dec 2000 During 1 Jan – 31 Dec 2001

Long-term borrowing (original maturity greater than 12 months)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder & Inter-Company borrowingOther with Unrelated companiesShort-term borrowing (original maturity 12 months or less)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder and Inter-Company borrowingSupplier credits from

Related companiesSupplier credits from

Unrelated companiesOther from unrelated

8(d) INTEREST PAYMENT DURING THE YEARDuring 1 Jan – 31 Dec 2000 During 1 Jan – 31 Dec 2001

Long-term borrowing (original maturity greater than 12 months)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder & Inter-Company borrowingOther long-termBorrowing withUnrelated companiesShort-term borrowing (original maturity 12 months or less)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder and Inter-Company borrowingSupplier credits fromRelated companiesSupplier credits fromUnrelated companiesOther short-term Financing

57

8(e) OTHER PAYMENT DURING THE YEARDuring 1 Jan – 31 Dec 2000 During 1 Jan – 31 Dec 2001

Long-term borrowing (original maturity greater than 12 months)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder & Inter-Company borrowingOther with Unrelated companiesShort-term borrowing (original maturity 12 months or less)Country/Multilateral 1. 2. 3. Tanzania 1. 2. 3. TanzaniaOrganisation.Shareholder and Inter-Company borrowingSupplier credits fromRelated companiesSupplier credits fromUnrelated companiesOther from unrelated

9 (a) Please approximate the proportion of equity and debt inflows that wasin the form of Cash during the following periods

1 Jan – 31 Dec 1999 1 Jan – 31 Dec 2000 1 Jan – 31 Dec 2001Percent

9(b) Please approximate the intended uses of your total equity and debtinflows during the following periods.

Intended Use Inflows during1 Jan – 31 Dec 1999 1 Jan – 31 Dec 2000 1 Jan – 31 Dec 2001

(a) Import of goods(b) Import of services(c) Locally sourced goods(d) Locally sourced services(e) Wages and salaries(d) Debt service principal(e) Debt service interest(f) Unallocated / reserves

(g) Other – please specify:

10. International transactions in services and incomePlease indicate in the table below how much your enterprise (a) received for services itrendered to non-residents (amount received) and/or (b) paid for services provided bynon-residents (amount paid).

Item Amount Received Amount Paid2000 2001 2000 2001

Royalties and License FeesSalaries and WagesConsultancy and Technical ServicesInsurance claims/premiumsOther Services (Please Specify)

58

PART C: PERCEPTIONS QUESTIONS11. Based on your perception of the present situation in Tanzania, how do the following

factors affect your decision to invest?

Strong Positive Positive Effect No Effect Negative Effect Strong NegativeEffect Effect

1 2 3 4 5

Factor Rating Factor RatingEconomic Policies Political and Governance FactorsMonetary Policy Domestic Political Stability

Regional Political StabilityFiscal Policy BureaucracyInflation Effectiveness of the Legal SystemGeneral macroeconomic policy Speed of Government Decision MakingTrade Policies Customs ProceduresRegional Economic integration Public sector corruption

Corporate corruptionMarket Expansion Internal SecurityTrade Liberalization

Tax Collection EfficiencyFinancial Policies Land law and administrationFinancial Sector Stability Investment facilitation Banking ServicesAvailability of local finance UtilitiesAvailability of foreign financeInterest Rates Electricity SupplyExchange Rate Electricity TariffLiberalization of Capital Account Water SupplyFinancial Sector Stability Water Tariff

Availability of Telecommunication servicesLabour Factors Telecommunication tariffShortage of SkillsWage Levels InfrastructureHIV/Aids Inland transport Labour Legislation Access to sea portAccessibility to New Technology Air transportationEnforcement of Environmental Legislation Port operation efficiencyLocal Supplier' Efficiency

Please comment on the most important issues highlighted above, and continue on a separate page asnecessary:

12. What is the likely Direction of your Investment in Tanzania over the next 3 years?Please tick appropriate box

Expansion No Change Contraction

Please explain which factors would influence such decision.

59

13. Please indicate in the Table below the current number of employees in yourcompany based on the following categorization.

Foreign nationals Tanzanian nationalsManagement Non-Management Management Non-Management

Skilled Other Skilled OtherFemale

Male

Do you have a staff development plan with respect to:a. Tanzanian nationals? Yes….. No…..b. Gender balance? Yes….. No…..

c. If yes, what problems do you encounter in implementation, and how may these beaddressed (please continue on a separate page if necessary)?

14. Sourcing of inputs of goods and services / raw materials14a. Where applicable, please approximate the proportion of your inputs of goodsand services / raw materials sourced from Tanzania as a share of the total?

…………………%

14b. If you source inputs of goods and services / raw materials from abroad ratherthan Tanzania, what factors determine your decision (tick as appropriate)?

i. Access and availability ii. Quality iii. Price iv. Other (please specify):

14c. Where applicable, what measures can be taken to encourage you to sourcemore of your inputs of goods and services/ raw materials locally (please continue ona separate page if necessary)?

15. Product Type and Destination Market15a. Please approximate the proportion of your total output by type:TYPE PERCENTi. Final products

ii. Intermediate products

60

TOTAL 100%15b. Please approximate the proportion of your total output by type intended forlocal and foreign markets

TYPE Local (%) Foreign (%) TOTALi. Final products 100%

ii. Intermediate products 100%

61

ANNEX QUESTIONS FOR COMPANIES WITH PRINCIPAL,INTEREST AND/OR OTHER PAYMENTS IN ARREARS

NOTE: Only for Loans from Non-Resident

8(f) ARREAS ON FOREIGN BORROWING (stock for year end 1999 and 2000;transactions during 2000)

Stock as Arrears Created During Payments of Arrears During Stock as at 31 Dec 1 Jan – 31 Dec 2000 1 Jan – 31 Dec 2000 at 31 Dec

1999 2000Principal Interest Other Principal Interest Other

Long-term borrowing (original maturity greater than 12 monthsShareholder & Inter-Company borrowingOther with Unrelated companiesShort-term borrowing (original maturity 12 months or less)Shareholder and Inter-Company borrowingSupplier credits fromRelated companiesSupplier credits fromUnrelated companiesOther from unrelated

8(g) ARREAS ON FOREIGN BORROWING (stock for year end 2000 and 2001;transactions during 2001)

Stock as Arrears Created During Payments of Arrears During Stock as at 31 Dec 1 Jan – 31 Dec 2001 1 Jan – 31 Dec 2001 at 31 Dec

2000 2001Principal Interest Other Principal Interest Other

Long-term borrowing (original maturity greater than 12 monthsShareholder & Inter-Company borrowingOther with Unrelated companiesShort-term borrowing (original maturity 12 months or less)Shareholder and Inter-Company borrowingSupplier credits fromRelated companiesSupplier credits fromUnrelated companiesOther from unrelated

THANK YOU FOR YOUR COOPERATION

62

Confidential

Office of Chief Government Statistician Bank of Tanzania Zanzibar Investment Promotion AgencyP.O.Box 2321 Zanzibar branch P. O. Box 2286, ZanzibarZanzibar P.O.Box 568, Zanzibar Tel: 255 24-2233026 Tel: 255 24-2231869 Tel: 255 24-2230803 255 24-2237858Fax: 255 24-2231742 255 24-2232362 Fax: 255 24-2232737 E - mail: zanstat@ zanlink.com Fax: 255 24-223 0415 E - mail: zipa@zanzinet.com

255 24-2232140 zipaznz@zanzinet.comWebsite: www.bot-tz.org Website: www.investzanzibar.com

DRAFTPERCEPTIONS QUESTIONNAIRESURVEY OF COMPANIES WITH LOCAL AND FOREIGN ASSETS AND LIABILITIES -

FORM TYPE:BOPZ /3/2002COMPANY REFERENCE NUMBER:…………………….. (for internal use only)REPORTING PERIOD: Year-ends 2002DUE DATE FOR RETURN:………………….

PART A: GENERAL INFORMATIONALL RESPONDENTS MUST COMPLETE THIS PART.

Date completed:Company name:Name and position of person completing this return:Company Address:

P. O. Box

District Area Street/Plot

Tel: Fax: E-mail:

Website:

Please give details of an alternative person whom we may contact in case we have any questions.

Date of Establishment Date of Commencing Operations

____/ _____/ _________ _____/ _____/ _________

PERCEPTIONS QUESTIONNAIRE FOR THE SURVEY OFCOMPANIES WITH LOCAL AND FOREIGN ASSETS AND

LIABILITIES

63

PLEASE READ THIS FIRST

This form collects information to be used by the Republic of Tanzania to improvenational and international economic policy formulation and for investment promotionpurposes. As such, it is a means to improve dialogue between government and the privatesector. Please answer all the questions. It complements the Assets and Liabilitiesquestionnaire, which also has been distributed to you to capture and classify balance ofpayments statistics and international investment position.

Please note that the legal mandate pertaining to collection and confidentiality apply a forform BOPZ/1/2002 and BOPZ/2/2002 and the forms should be submitted together. If youneed help, please contact:

Amour Hamil Said Chiguma Fatma A. JumbeOffice of Chief Government Statistician Bank of Tanzania, Zanzibar branch Zanzibar InvestmentP.O. Box 2321, Zanzibar P.O. Box 568, Zanzibar Promotion AgencyTel: 255 24-2231869 Tel: 255 24-2230803 / 255 24-2232362 P. O. Box 2286, ZanzibarFax: 255 24-2231742 Fax: 255 24-223 0415 / 255 24-2232140 Tel: 255 24-2233026 E - mail: zanstat@ zanlink.co E-mail: info@hq.bot-tz.org 255 24-2237858

Website: www.bot-tz.org Fax: 255 24-2232737Fatma A. Jumbe E - mail: zipa@zanzinet.com

zipaznz@zanzinet.com

Website: www.investzanzibar.com

THANK YOU IN ADVANCE FOR YOUR COOPERATION.

PART B:

1. To what extent have the following macroeconomic factors affected investment inyour business?

Strong Positive Positive Effect No Effect Negative Effect Strong Effect negative effect

1 2 3 4 5

at start-up* NowFiscal policy ( ) ( )Monetary policy ( ) ( )Government stability ( ) ( )Composition of government spending ( ) ( )Regulatory Framework ( ) ( )State intervention in private business ( ) ( )Business environment stability ( ) ( )Environmental policy ( ) ( )Foreign policy ( ) ( )Financial sector stability ( ) ( )

Please add any additional Information

* Note: “at start-up” refers to the year when foreign investment first took place.

64

2. To what extent have the availability and condition of the following infrastructuresand services affected investment in your business?

Strong Positive Positive Effect No Effect Negative Effect Strong Effect negative effect

1 2 3 4 5

at start-up* nowInland Transport (roads, rails) ( ) ( )Access to seaports ( ) ( )Airports and Air Transportation ( ) ( )Electricity supply ( ) ( )Water supply ( ) ( )Postal services ( ) ( )Telecommunications ( ) ( )Custom services ( ) ( )Immigration facilities ( ) ( )Municipal services (garbage, sewerage, etc.) ( ) ( )Banking services ( ) ( )Credit rating agencies ( ) ( )

Please add any additional Information

3. To what extent have the following financial factors affected investment in yourbusiness?

Strong Positive Positive Effect No Effect Negative Effect Strong Effect negative effect

1 2 3 4 5

at start-up* NowInflation ( ) ( )Availability of business finance/credit ( ) ( )Interest rates ( ) ( )Depreciation of the domestic currency ( ) ( )National Payment System ( ) ( )Exchange control ( ) ( )

Please add any additional Information

65

66

* Note: “at start-up” refers to the year when foreign investment first took place.

4. To what extent have the following governance factors affected investment in yourbusiness?

Strong Positive Positive Effect No Effect Negative Effect Strong Effect negative effect

1 2 3 4 5

at start-up* nowRegional trade integration ( ) ( )Trade policy ( ) ( )Investment incentives ( ) ( )Bureaucracy ( ) ( )Tax collection efficiency ( ) ( )Effectiveness of the legal system ( ) ( )Land law and administrationSpeed of decision making in the following institutionsTanzania Investment Centre ( ) ( )Ministry of Commerce and Industries ( ) ( )Tanzania Revenue Authority ( ) ( )Immigration ( ) ( )Bank of Tanzania ( ) ( )Other (specify) ( ) ( )

Please add any additional Information

5. To what extent have the following labour factors affected investment in yourbusiness?

Strong Positive Positive Effect No Effect Negative Effect Strong Effect negative effect

1 2 3 4 5

at start-up* nowLabour legislation ( ) ( )Restrictions regarding bringing in expatriates ( ) ( )Labour stability ( ) ( )Minimum wage levels ( ) ( )Availability of highly educated employees ( ) ( )Availability of skilled employees ( ) ( )HIV / Aids ( ) ( )

Please add any additional Information

67

* Note: “at start-up” refers to the year when foreign investment first took place.

6. To what extent have the diverse factors presented below affected investment in yourbusiness?

Strong Positive Positive Effect No Effect Negative Effect Strong Effect negative effect

1 2 3 4 5

at start-up* nowCorruption ( ) ( )Internal security ( ) ( )Domestic political scenario ( ) ( )Regional political scenario ( ) ( )Domestic economic situation ( ) ( )Global economic situation ( ) ( )Market expansion ( ) ( )Electricity tariff ( ) ( )Water tariff ( ) ( )Zanzibar route ( ) ( )Smuggling ( ) ( )

Please add any additional Information

7. Please specify the most important factors that influenced your initial decision toinvest in Tanzania.

8. What is the likely direction of your investment in Tanzania over the next 3 years?

Please tick appropriate box

Expansion No change Contraction

Please explain which factors would influence such decision.

68

9. What measures can the Government undertake to improve investors' willingness toreport to the government on their operations?

10. Please identify or tick below the most reliable sources of information for yourinitial investment decisions.

Local media (please specify)

International media (please specify)

Government (please specify agency)

Donors and international agencies (please specify)

Business associates

Competitors

Word of mouth

Other (please specify)

11. Generally, how do you find the investment policy and climate in promoting privatecapital flows in Tanzania?

12. Any other comment regarding the effect of Government policies on yourorganisation.

13. Please indicate in the Table below the current number of employees in yourcompany based on the following categorization.

Foreign nationals Tanzanian nationalsManagement Non-Management Management Non-Management

Skilled Other Skilled OtherFemale

Male

Do you have a staff development plan with respect to:Please tick as appropriatea. Tanzanian nationals? Yes….. No…..b. Gender balance? Yes….. No…..If yes, what problems do you encounter in implementation, and how may these beaddressed (please continue on a separate page if necessary)?

14. Sourcing of inputs of goods and services / raw materials

14a. Where applicable, please approximate the proportion of your inputs of goods andservices / raw materials sourced from Tanzania as a share of the total? ………%

14b. If you source inputs of goods and services / raw materials from abroad rather thanTanzania, what factors determine your decision (tick as appropriate)?

i. Access and availability ii. Quality iii. Price iv. Other (please specify):

14c. Where applicable, what measures can be taken to encourage you to source more ofyour inputs of goods and services/ raw materials locally (please continue on aseparate page if necessary)?

15. Product Type and Destination Market

15a. Please approximate the proportion of your total output by type:

TYPE PERCENT

i. Final products

ii. Intermediate products

TOTAL 100%

15b. Please approximate the proportion of your total output by type intended for localand foreign markets

TYPE Local (%) Foreign (%) TOTALi. Final products 100%

ii. Intermediate products 100%

69

70

Confidential

Office of Chief Government Statistician Bank of Tanzania Zanzibar Investment Promotion AgencyP.O.Box 2321 Zanzibar branch P. O. Box 2286, ZanzibarZanzibar P.O.Box 568, Zanzibar Tel: 255 24-2233026 Tel: 255 24-2231869 Tel: 255 24-2230803 255 24-2237858Fax: 255 24-2231742 255 24-2232362 Fax: 255 24-2232737 E - mail: zanstat@ zanlink.com Fax: 255 24-223 0415 E - mail: zipa@zanzinet.com

255 24-2232140 zipaznz@zanzinet.comWebsite: www.bot-tz.org Website: www.investzanzibar.com

FORM TYPE: BOPZ/2/2002COMPANY REFERENCE NUMBER:…………………….. (for internal use only)DUE DATE FOR RETURN: ___/____/______RESEARCH OFFICER:………………………………………..

Date completed:

Company name:

Name and position of person completing this return:

PLEASE READ THIS FIRST

This form collects information on external borrowings by enterprises in TanzaniaZanzibar.In this questionnaire you are required to provide details of each individual loan that yourentity has contracted with a non-resident individual or organisation. Such detailedinformation is vital for proper debt recording, and will assist to assess and formulatepolicy advice on nature, composition and type of the country external indebtedness. Please note that the legal mandate pertaining to collection authority and confidentialityapply as for Form BOP/1/2002 and both forms should be submitted together.

If you have problems in completing this form, please refer to notes. Alternatively, pleasecontact BOT Zanzibar Branch through the details given below:

S. ChigumaBank of TanzaniaZanzibar BranchTel: (255)-24- 2230803 Fax: (255)-24 2231411

THANK YOU IN ADVANCE FOR YOUR COOPERATION.

QUESTIONNAIRE FOR THE SURVEY OF PRIVATE SECTOREXTERNAL DEBT (PSED) UP TO YEAR 2002

71

Please SKIP question 1A, for ALL long-term loans that are already registered with the Bank of Tanzania.

1A: Long Term Loans (Maturity greater than 12 months)

Please complete this question OR Supply a copy of loan agreement ONLY for New Borrowings orAmendments or for Borrowings which have NOT YET been reported to Bank of Tanzania.

In case you have contracted more than 3 loans, please give similar information on a separate sheet.

Item Loan Particulars Explanations Example Loan Loan Loan

No. No. 1 No. 2 No. 3

1 Loan Registration Number BOT Reg. No xxxxxxxx

2 Creditor Institution/Group Commercial Banks, Individual, (Others

(Financing Source) Parent Company, Specify)

Inter-company Commercial

Bank

3 Loan Title/ Purpose of Project Financing, Working Working

borrowing Capital, Import of raw Capital

material/machinery, Others

(Please specify.)

4 Creditor Particulars:

(a) Name Specify Creditor name Coy Ltd

(b) Country Specify creditor country USA

5 Original Loan Amount Specify amount in units 100.00

6 Loan currency Indicate original Loan currency USD

7 Agreement date DD/MM/YYYY 01/01/2000

8 Principal repayment

(a) First repayment date DD/MM/YYYY 30/06/2002

(b) Final repayment date DD/MM/YYYY 31/12/2004

(c) Repayments method Equal Principal repayments, Equal

Lump sum, annuity, Others Principal

(Please specify) Repayments

(d) Number of payments per Indicate frequency and dates Semi

year (frequency) and dates of payments annually -

June. & Dec

9 Interest payment Fixed, (state rate), Variable 5%,

(a) Terms of interest (state rate & margin), zero LIBOR +

interest 1%

(b) Number of payments Indicate frequency and dates Monthly-

per year of payment January,

Feb …Dec

(c) Days in interest year 360 or 365 360

10 Other fees

Service Fees State rate (commitment fees, Commitment

Legal Fees etc) fee 1%

72

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2A: Short Term Loans (Maturity of 12 months or less)

Please provide details of short-term loans OR Supply a copy of loan agreement for loans contracted tonon-resident individuals or organisation during 2002. DO NOT include domestic borrowings. In case youhave contracted more than 3 short-term loans, give similar information on a separate sheet.

No Particulars Explanations Example Loan Loan Loan

No.1 No.2 No.3

1 Creditor Name State name of creditor Bank/ Co

2 Creditor Country State creditor country USA

3 Type of credit/loan Letters of credit, Bill of

exchange, Pre-export Finance,

Suppliers Credits

(any other specify) S. Credit

4 Date of Agreement DD/MM/YYYY May 2002

5 Total Loan Amount Specify amount in units 600,000

6 Loan Currency Indicate the loan currency USD

7 Duration of Loan in months Indicate duration of the

loan in months 12

8 Maturity Date DD/MM/YYYY July 2002

9 Purpose of Borrowing Import of Machinery/raw Working

materials, Working Capital, capital

(Others specify)

10 Projected. Repayment Dates DD/MM/YYYY Jan /June

11 Estimated Interest payment

per month State amounts 10,000

12 Estimated Principal

Repayments per month State amounts 50,000

74

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NOTES/CONCEPTS

Supplier’s Credits: A loan (export credit) extended by an exporter to finance the purchaseof that exporter’s goods or contractual service.

Buyer’s Credit: An export credit extended by the exporter’s bank whereby exporter getspaid immediately against shipping documents, and payments to the exporter by the bankare treated as disbursement under the credit (buyer’s credit) to the importer.

Official Export Credits; Export credit extended by specialized agencies of the exporter’sgovernment

Revolving credit: Loan agreement which makes repaid amounts available to be redrawnat the borrower ’s discretion

Bill of exchange: An unconditional order in writing, addressed by one person to another,signed by the person giving it, requiring the person to whom it is addressed to pay ondemand or at a stated future date a sum of money to a certain person or to the order ofthat person or to bearer. Most of the bills of exchange are drawn for three months afterdate.

Working capital loan: Loan specifically meant for financing day to day runningoperations of a business/company, used to pay such expenses as salaries, purchases etc.The level of the working capital requirement is determined by deducting the currentliabilities from the current assets.

Fixed Interest Rate: A rate of interest that is defined in absolute terms at the time of loanagreement e.g. 10%.

Variable Interest Rate: A rate of interest that is computed by adding a spread to apredetermined base rate e.g. LIBOR + 1.5.

Disbursed Outstanding Debt (DOD): The amount that has been disbursed from a loancommitment but has not yet been repaid or forgiven.

Service Charges: All charges that must be paid as price of the loan such as interest,commitment fees, management fees etc.

Penalty (late Interest Charges): Additional interest that may be levied on obligationsoverdue beyond a specified time.

Loans write – Off: The reduction of the disbursed and outstanding debt or payments duethrough forgiveness of the amounts by the creditor.

Loan Cancellation: An agreed reduction in the undisbursed balance of the loancommitment

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