Analysis of the Investment and Special Economic Zones Bill, 2024

January 16, 2025

The Investment and Special Economic Zones Bill, 2024 introduces significant reforms aimed at enhancing Tanzania’s investment climate. This analysis evaluates the Act’s strengths and weaknesses, particularly concerning its ability to attract investments in the manufacturing sector, which is a priority for the government of the United Republic of Tanzania and reflected in the Tanzania National Vision 2050.

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Key Strengths of the Act

1. Establishment of a Centralized Authority
   • The Act establishes the Tanzania Investment and Special Economic Zones Authority (TISEZA) as a one-stop center for investors. This is a combination of the Export Processing Zone Authority and the Tanzania Investment Centre, which means that all investments will fall under one authority. This structure centralizes investment facilitation. For manufacturing investors, streamlined services such as licensing, land acquisition, and permits are critical. Furthermore, there is a proposed obligation now for all investments in the country to register themselves with TISEZA, whether they will be eligible for incentives. This will allow TISEZA to have accurate data on the investments in the country.
2. Comprehensive Incentives
   • Investors in Special Economic Zones (SEZs) enjoy generous incentives, including:
     • Exemptions from customs duties, VAT, and corporate income tax for up to ten years.
     • Duty-free importation of essential equipment and construction materials.
     • Exemptions from local government taxes and port charges.
     • Facilitated issuance of business visas for foreign employees.
   • Such fiscal incentives make the manufacturing sector attractive, particularly for export-oriented industries requiring capital-intensive operations.
3. Integration with Technology
   • The proposed Act mandates an integrated electronic system linking all authorities involved in licensing, permits, and clearances. This technology-driven approach already exists and is functioning within the Tanzania Investment Center therefore building on what already exists can improve transparency and efficiency, ensuring timely support for manufacturers who often require precise coordination of multiple regulatory approvals.
4. Special Economic Zones Focus
   • SEZs are tailored to manufacturing through provisions for industrial clusters, export processing zones, and free trade zones. These areas benefit from enhanced infrastructure and policies aimed at promoting productivity and competitiveness.
5. Support for Local and Foreign Collaboration
   • The Act guarantees equal opportunities for foreign investors and protects their rights against expropriation, fostering trust. At the same time, obligations like sourcing local raw materials promote integration with domestic industries.
6. Dispute Resolution Mechanism
   • The establishment of structured mechanisms for complaint handling and dispute resolution provides assurance to investors. Timely resolution of grievances is particularly important for manufacturers who face operational disruptions due to regulatory bottlenecks.

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Weaknesses of the Act

1. Ambiguity in Implementation
   • While the Act outlines ambitious provisions, the actual implementation heavily depends on subsidiary regulations that are yet to be drafted. For example, conditions for registration of investment projects and the requirements, namely investment capital thresholds are not defined in the Act, but will be provided for in the regulations. This uncertainty could deter immediate investment commitments, especially in manufacturing, which requires long-term planning.
2. Lack of Clarity on Incentives for Non-SEZ investors
   1. There is ambiguity in terms of the incentives that an investor that receives an investment certificate outside the SEZ. The proposed Act proposes that these non-fiscal and fiscal incentives will be decided by the Tanzania Revenue Authority, Ministry of Finance and other concerned institutions. This implies that procedures related to gazetting which is long and bureaucratic will be applied, and this uncertainty is discouraging for this category of investors.
   1. Furthermore, while the proposed Act focuses on incentivising investors that will be exporting, Tanzania being a net importer of a many goods and services would do well to consider investors that will be interested in supplying only the Tanzania market and incentivise the same.

3. Limitations on Foreign Workforce
   • The restrictions on foreign employees, subject to additional approvals and limits, may challenge manufacturing sectors that rely on specialized skills unavailable locally. The Act could benefit from clearer pathways to attract and retain foreign expertise.
4. Land Access Issues
   • Although the Authority is tasked with identifying land for SEZs, securing land remains a complex issue in Tanzania due to overlapping regulations and local government involvement. Investors in manufacturing often require significant land, making this a potential bottleneck.
5. Infrastructure Development Concerns
   • While SEZs promise enhanced infrastructure, the proposed Act does not guarantee timelines or accountability for infrastructure delivery. Without adequate roads, utilities, and logistics networks, manufacturing investments could face operational challenges.
6. Limited Environmental Provisions
   • Although the Act requires compliance with environmental laws, it does not emphasize sustainable industrial practices. Manufacturing sectors could face reputational risks if environmental concerns are not proactively addressed.
7. Potential Overlap with Existing Laws
   • The repeal of previous acts—the Tanzania Investment Act, 2022 and the Special Economic Zones Act, 2002—may create transitional confusion. Investors require clarity on how existing projects will be transitioned under the new framework.

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Impact on Manufacturing Sector

The Act’s specific focus on SEZs, coupled with fiscal incentives and streamlined processes, positions Tanzania as an attractive destination for manufacturing investments. Key areas of impact include:

1. Encouragement of Export-Oriented Manufacturing
   • Exemptions on customs duties and corporate income tax, combined with access to SEZs, favor industries aiming to produce goods for export. This aligns with global trends of nearshoring and diversification of supply chains.
2. Boost to Value-Addition Industries
   • Provisions requiring local raw material use can stimulate value addition in sectors such as agriculture, minerals, and textiles, creating a vertically integrated manufacturing ecosystem.
3. Employment Generation
   • Manufacturing in SEZs is likely to generate substantial employment opportunities, particularly for semi-skilled and unskilled workers. The emphasis on skill development by investors further enhances long-term benefits.
4. Technology Transfer
   • By encouraging foreign direct investment and partnerships, the proposed Act facilitates the transfer of advanced manufacturing technologies, boosting productivity, innovation, and local ownership
5. Regional Competitiveness
   • The focus on SEZs aligns Tanzania with regional peers like Kenya and Ethiopia, which have successfully leveraged SEZs to attract global manufacturing firms. However, successful implementation is key to maintaining competitiveness.

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Recommendations for Improvement

1. Detailed Regulations and Timelines
   • Expedite the drafting and dissemination of subsidiary regulations to provide clarity on implementation. Include specific timelines for SEZ infrastructure development.
2. Enhanced Environmental Focus
   • Increasingly financing from European and US based institutions require robust compliance with ESG. It is therefore important to Introduce incentives for green manufacturing practices, such as renewable energy use, waste reduction, and eco-friendly technologies. This will attract environmentally conscious investors, but also will be in line with the current capital requirements for funding projects, particularly in Africa.
3. Flexible Workforce Policies
   • Relax restrictions on foreign employees for specialized roles and ensure transparent processes for work permits. Encourage training programs to develop local expertise.
4. Land Acquisition Reforms
   • Streamline land acquisition processes by collaborating with local governments and ensuring investors have clear guidelines on land use policies.
5. Continuous Investor Engagement
   • Establish regular forums for investors to provide feedback on the proposed Act’s implementation. This participatory approach can address emerging challenges and build trust.
6. Marketing and Promotion
   • Aggressively market the SEZs and incentives globally, showcasing Tanzania’s commitment to manufacturing growth. Highlight success stories to build confidence among potential investors.

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Section-by-Section Analysis of the Act

1. Section 1: Title
   • The title clearly identifies the law and its scope, ensuring ease of reference.
2. Section 2: Application

2. Excludes high-risk sectors such as mining and arms, ensuring alignment with public interest.
3. However, exclusion of certain sectors might limit investment diversity and also creates ambiguity with regards to projects that are fall in theses sector but have a clean manufacturing component for example in the mining sector.
4. Section 3: Interpretation
   • Provides clarity on key terms like “investment,” “foreign investor,” and “special economic zones,” reducing ambiguity.
   • With the drive of the government to encourage private equity and venture capital investment in Tanzania, there is ambiguity of whether equity investments may fall under the scope of the proposed Act or not.
   • Definitions might still require expansion in regulations to avoid loopholes
5. Section 4: Establishment of TISEZA
   • Centralizes investment processes, reducing bureaucratic hurdles.
   • Effectiveness depends on capacity building and staff training.
6. Section 5: Objectives of TISEZA
   • Focus on coordination and policy advice enhances investor confidence.
   • However, success depends on political will and inter-ministerial collaboration.
7. Section 6: Functions of the Authority
   • Comprehensive functions ensure a holistic approach to investment facilitation, including promoting PPPs and issuing licenses.
   • Broad mandate may stretch the Authority’s resources, reducing efficiency.
8. Section 7: National Investment Development Committee
   • High-level oversight ensures alignment with national priorities.
   • Potential bureaucratic delays due to inter-ministerial coordination.
9. Section 8: Board of the Authority
   • Provides governance and accountability mechanisms.
   • Decision-making might be slowed by the composition of the Board.
10. Section 9: Functions and Powers of the Board
    • Clear delineation of roles enhances operational clarity.
    • Execution depends heavily on the competence of Board members so emphasis should be on competitive recruitment rather than political appointments.
11. Section 10: Director-General
    • Establishes a clear chain of command within the Authority.
    • Significant power vested in one position may lead to inefficiency if not managed properly.
    • The importance of this role would require competitive recruitment rather than a presidential appointment.
12. Section 11: Staff of the Authority
    • Ensures necessary staffing to execute the Authority’s functions.
    • Quality of staff depends on transparent recruitment and training.
    • Conflict between provisions mandating Board to discipline staff and the Director General to oversee discipline of staff.
13. Section 12: One-Stop Service Center
    • Reduces delays by providing all services under one roof.
    • Infrastructure and capacity challenges may hinder full implementation. In addition, willingness for government authorities to integrate within the One-Stop-Service Centre may cause delays and remove calibre of services rendered to the investors.
14. Section 13: Services Provided Outside the One-Stop Service Center
    • Ensures services are accessible even outside the scope of the One-Stop Service Centre.
    • May lead to inconsistencies in service quality.
15. Section 14: Integrated Electronic System
    • Enhances transparency and operational efficiency.
    • Relies on robust digital infrastructure.
16. Section 15 and 16: Registration of Investors and Application for Certificates or Licenses
    • Section 15 mandates that all investments in Tanzania must be registered with the Authority, which will enable the Authority to monitor all investments in the country and have accurate data with regards to the same.
    • Both section 15 and 16 lack of clarity as to what the conditions and requirements for registration are as well as provisions and procedures regarding the investment activities to be undertaken since these will be outlined in regulations/ subsidiary legislation. This may deter immediate investment.
17. Section 17: Certificates or Licenses
    • Ensures accountability and standardization for investment activities.
    • Revocation criteria might be too rigid for certain circumstances.
18. Section 18: Changes or Abandonment of Investment
    • Tracks changes and ensures compliance of investors which is important.
    • Reduces opportunity for those in the business of brokering certificate of incentives ie obtaining and transferring the same to other entities for a fee.
19. Section 19: Investment Incentives

The incentives offered for SEZ investors will attract investors as the fiscal benefits are very generous. However, suggestion for the government to create categories whereby investors will be receiving certain incentives instead of blanket right of incentives. An investor investing USD 1 million may not warrant the same 10-year corporate tax exemption that one investing USD 20 million. Heavy reliance on incentives might strain government revenues therefore government needs to consider these proposed incentives. Incentives for non-SEZ investors remains unclear and calls for different government authorities and agencies to establish these incentives. This is discouraging for investors as it creates a lack of transparency and predictability which is essential for attracting investment. Recommendation to include incentives for non-SEZ investors who will be manufacturing in Tanzania for supplying the Tanzania market as they should not be prejudiced for not exporting.

18. Section 20-24: Additional Provisions on Investment Facilitation
    • Encourages private sector participation and data-driven policy making.
    • Execution depends on effective inter-agency coordination.
19. Section 25: Establishment of SEZs
    • Provides a structured framework for promoting industrial clusters.
    • Land acquisition and infrastructure remain potential bottlenecks.
20. Section 26: Procedure for Establishing SEZs
    • Currently the process for establishing an SEZ takes a year, which is unsustainable for an investor. This provision should be amended to provide more detailed steps reduce ambiguity and to create a special regime for establishing an SEZ which will be swift so investors are not slowed down on project development.
21. Section 27: Customs Matters in SEZs
    • Once an SEZ is established, it falls under the control and management of the customs Authority  simplifies customs processes for SEZ operators.
    • Ambiguity and lack of clarity with regards to taxation handling within the SEZ and disputes. This is an important aspect of an investor’s decision to invest, therefore government should provide from the onset clear provisions on this matter which will not be subject to major changes.
22. Section 28: Importation and Exportation of Goods and Services in SEZs
    • Encourages export-oriented production. Only 20% of products and services can be supplied inside of Tanzania and the rest must be exported.
    • May create administrative complexities for mixed-use SEZs.
23. Section 29: Management of SEZs
    • Provides for different licenses available for investors in SEZ as well as the criteria to be considered for the said licenses.
    • Lack of clarity as to criteria and process to obtaining said licenses
24. Section 30: SEZ Service Providers
    • Supports holistic SEZ development.
    • Success depends on adherence to timelines and quality standards, which are yet to be defined.
25. Section 33: Guarantee of Transfer of Profits
    • Provides assurance on capital mobility, boosting investor confidence.
    • Requires robust enforcement mechanisms to prevent misuse.
26. Section 34: Protection Against Expropriation
    • Aligns with international best practices.
27. Section 35: Equal Opportunities for Foreign Investors
    • Promotes a level playing field between foreign investors and domestic investors
    • Domestic industries might feel overshadowed, although there is an exception clause that provides that government can still implement local content measures favouring domestic investors.
28. Section 36: Limit on Foreign Employees
    • Encourages local skill development and employment.
    • Limits on foreign expertise might hinder industries requiring specialized skills.
29. Section 37: Access to Loans for Foreign Investors
    • Enables financial inclusion for foreign investors.
    • Conditions for loan access for example contingent on capital amount deployed might discourage small investors and is an unnecessary measure
30. Section 38: Complaints Handling
    • Ensures investor concerns are addressed promptly.
    • Effectiveness depends on the cooperation of other government institutions.
    • Experience currently demonstrates that complaints through the TIC do not work since the mechanism is largely dependent on the good will of government authorities and TIC has no mechanism for enforcement or persuasion to bring the institutions to the table.
    • Provisions that specifically address this problem should be provided.
31. Section 39: Appeals
    • In the event where an investors receives a decision by the Authority and that they are dissatisfied with the same, they can appeal to the Minister responsible for Investment.
    • Lack of detailed timelines may delay resolution. It would be prudent to provide at timeline by when a decision by the Minister should be made.
32. Section 40: Dispute Resolution
    • Encourages amicable settlements before litigation.
    • Lack of detailed guidelines on arbitration mechanisms.
    • Removes specific reference to dispute resolution mechanism at ICSID and or mechanisms provided under bilateral investment treaties, but instead provides that arbitration must be agreed to by both parties ie the government and the investor. This puts the investor at a disadvantage and may discourage investments since the guarantee to recourse of non-biased and non-political dispute resolution mechanisms is not guaranteed, as is currently under current law.
33. Section 41: Sources of Funds for the Authority
    • Diversified funding sources enhance sustainability.
    • Dependence on government allocations might limit flexibility.
34. Section 42: Authority’s Budget
    • Promotes fiscal discipline and accountability.
    • Dependence on government approval may limit autonomy.
35. Section 43: Accounts and Audit
    • Ensures transparency in financial management.
    • Effectiveness depends on timely audits and reporting.
36. Section 44: Annual Report
    • Promotes accountability and transparency in the Authority’s operations.
37. Section 45: Offenses and Penalties
    • Deters malpractices and ensures adherence to the Act.
    • Penalties might not be significant enough to deter large corporations. Should consider increasing amounts.
38. Section 46: Protection Against Personal Liability
    • Protects officials acting in good faith.
    • Potential misuse as a shield against accountability.
39. Section 47: Investment Register
    • Centralized data ensures better monitoring and planning.
    • Requires regular updates and robust systems.
40. Section 49: Regulations
    • Provides flexibility to adapt to emerging needs.
    • Over-reliance on regulations might delay implementation. Conditions to register and qualifications should be provided for in the main legislation so as to avoid delays in investment registrations.
41. Section 50: Repeal of Laws
    • Avoids redundancy by repealing outdated laws.
    • Transitional confusion might arise during implementation. Proposed Act should be clear about the existing investors with their certificates of incentives or EPZA certificates and the transition mechanisms for them in order to enforce confidence.

This proposed Investment Act is to be enacted in February 2025. Meanwhile, as an investor it is important to understand its implications and if you are already registered with either the TIC or EPZA, how this new legislation will impact you. For more information and guidance, feel free to reach out to me at amnesuedi@shikanagroup.com