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How Does Sectoral FDI Enhance Export Earnings? The Tanzania Experiences

How Does Sectoral FDI Enhance Export Earnings? The Tanzania Experiences. Charles Domician Secretary–General: Tanzania Trade Experts’ Association (TRADEXA) & Assistant Lecturer–University of Dar es Salaam (UDSM) +255784334960; chardoluf@yahoo.co.uk; tradexatz@yahoo.com

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How Does Sectoral FDI Enhance Export Earnings? The Tanzania Experiences

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  1. How Does Sectoral FDI Enhance Export Earnings? The Tanzania Experiences Charles Domician Secretary–General: Tanzania Trade Experts’ Association (TRADEXA) & Assistant Lecturer–University of Dar es Salaam (UDSM) +255784334960; chardoluf@yahoo.co.uk; tradexatz@yahoo.com (Presented at UNCTAD’s Kampala Workshop on IIAs: 9-14Nov2008) Domician, Charles: FDI & Export Earnings

  2. Background & research questions • A boom in FDI followed Tanzania’s economic liberalisation of the 1990s • FDI used to fill gap in BoP equation; especially due to low domestic investment, rising import bill and inadequate export earnings (forex) • More FDI recorded in mining and manufacturing; and less in agriculture • Basing on the preceding, it is important to study the influence FDI has had on the country’s export earnings; and its economic impact in terms of backward and forward sectoral linkages Domician, Charles: FDI & Export Earnings

  3. Research methodology • Application of econometric estimation techniques (OLS & ECM) • A good measure of long term relationships and impact among economic variables • Data involved: 1976 to 2007; not well structured/organised/reported for period prior to 1987. • Tedious exercise of putting together pieces of related data and corresponding periods Domician, Charles: FDI & Export Earnings

  4. Research findings Domician, Charles: FDI & Export Earnings

  5. Research findings (2) • FDI stock leads to mixed export results depending on sectoral capital intensiveness (in mining vs tourism), investment adequacy and targeting (e.g. in agriculture & manufacturing) • Mining and tourism with highest export earnings, yet the least in GDP contribution, hence coined “Vehicles for Export Earnings Flight–(VEEF)”. • Manufacturing is second to mining in FDI stock (2007), yet it ranks lowest with agriculture in terms of export earnings Domician, Charles: FDI & Export Earnings

  6. Policy implications • FDI can enhance host country’s export earnings, but it may do so in unfavourable pattern to local economy • Particularly, the Tanzanian case can partly be explained by the existing loose investment policy that allows full repatriation abroad of foreign investors’ locally accumulated capital and earnings. • Tanzania’s investment policy should therefore be reviewed to enable building of a competitive and sustainable value-added export sector with elements of joint domestic and foreign venture ownership, hence the transfer of capital and diffusion of key skills, knowledge and technology to indigenous sectoral producers, processors and exporters. Domician, Charles: FDI & Export Earnings

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