ASSESSMENT OF IMPACT FDI IN MANUFACTURING INDUSTRY …
83
ASSESSMENT OF IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) IN MANUFACTURING INDUSTRY FOR THE CASE OF DAR ES SALAAM, TANZANIA
Transcript of ASSESSMENT OF IMPACT FDI IN MANUFACTURING INDUSTRY …
ASSESSMENT OF IMPACT OF FOREIGN DIRECT
INVESTMENT (FDI) IN MANUFACTURING INDUSTRY FOR
THE CASE OF DAR ES SALAAM, TANZANIA
ASSESSMENT OF IMPACT OF FOREIGN DIRECT
INVESTMENT (FDI) IN MANUFACTURING INDUSTRY FOR
THE CASE OF DAR ES SALAAM, TANZANIA
By
Anna Simon
A Dissertation Submitted in Partial Fulfilment of the Requirements for the
Degree of Master of Business Administration in Corporate Management (MBA-
CM of Mzumbe University
2014
i
CERTIFICATION
We, the undersigned, certify that we have read and hereby recommend for
acceptance by the Mzumbe University, a dissertation entitled Assessment of Impact
of Foreign Direct Investment (FDI) in Manufacturing Industry for the Case of
Dar es Salaam, Tanzania in partial fulfillment of the requirements for the Degree of
Master of Business Administration in Corporate Management (MBA-CM) at
Mzumbe University.
______________
Major Supervisor
_______________
Internal Examiner
________________
External Examiner
Accepted for the Board of MUDCC
____________________________________________________________
DEAN/ DIRECTOR, FACULTY/DIRECTORATE/SCHOOL/BOARD
ii
DECLARATION
AND
COPYRIGHT
I, Anna Simon, declare that this research report is my own original work and that it
has not been presented and will not be presented to any other university for similar or
any other degree award.
Signature ……………………………………….
Date …………………………………………....
© 2014
This research report is a copyright material protected under the Berne Convention,
the Copyright Act 1999 and other international and national enactments, in that
behalf, on intellectual property. It may not be produced by any means in full or in
part, except for short extracts in fair dealings, for research or private study, critical
scholarly review or discourse with an acknowledgement, without the written
permission of Mzumbe University, on behalf of the author.
iii
ACKNOLEDGEMENT
First of all I thank my GOD, the Almighty for His graces which drove to achieve the
desired end of production of my Research Report.
Secondly, I wish to express my thanks to Mr.Maige Mwasimba, my research
supervisor, for his views and comments throughout the research process. Many
thanks go to the leadership of the following institutions: Tanzania Investment Centre
(TIC), EPZA Tanzania, TCC, TCCIA, NIDA and SIDO for allowing me to conduct
this research at their premises.
And then the most patient Husband and friend of mine Paul S. Msaki, who spared
most of his time and dedication in comforting me when I worked during odd time,
towards the completion of this heavy task. And also special thanks to my dear son
Elvis P. Msaki as well as my daughter Arielle P. Msaki for them being the ‘drivers’
of my ambitions to success.
Last but not least, I would like to appreciate the support and resources I got from
Management of DCB Commercial Bank Plc, for provide me ample time to
accomplish my study ambition.
as well as the entire academic panel of Mzumbe University for their training and
guidance towards my academic achievement.
Thank you all once again and May God Bless you!
iv
LIST OF ABBREVIATIONS
CTI - Confederation of Tanzania Industries.
EPZA - Export Processing Zone Authority
FDI - Foreign Direct Investment
GDP - Gross Domestic Product
IPLC - International Product Life Cycle
MNC - Multinational company
MNE - Multinational Enterprises
OECD - Organization for Economic Cooperation and Development
OFC - Offshore Financial Centers
SIDO - Small Industries Development Organization
SME - Small and Medium Enterprise
TCCIA - Tanzania Chamber of Commerce and Industries Association
TIC - Tanzania Investment Centre
TNC - Transnational cooperation
UNCTAD - United Nations Conference on Trade and Development
UNESCO - United Nations Educational, Scientific and Cultural
Organization
URT - United Republic Of Tanzania
US - United state
v
ABSTRACT
This study intended to assess the impact of Foreign Direct Investments in manufacturing
industries in Dar es Salaam Tanzania. As described through Chapter One, this study
covered several key institutions including investments promotions and monitoring
centers in Tanzania including TIC, EPZA, TCCIA and TCC, and also manufacturing and
processing companies including SIDO, TCC, and Bakhresa group of companies,
whereby all these areas provided me with substantial data resources which supported the
problem settings in answering most of my research questions and so well accomplishing
my research objectives throughout this study.
Extensive Theoretical and Empirical literature review is envisaged through Chapter Two,
where by various studies and references from several researchers were examined, in
supportive to the core objectives of the study including several assessments on the
impact of Foreign Direct Investment in manufacturing Industries, and overall impact on
countries’ social economic development as well as annual GDPs.
Research methodology, including the design, Data collection techniques such as
Questionnaires, Interviews and Documentary Review are well covered through Chapter
Three. In this chapter, also, data sample size, data analysis and discussion or
interpretation of the findings are described. The actual presentation of the research
findings, data analysis, discussions of the collected data and related findings and finally
the interpretation of the results are done through Chapter Four. In this chapter, additional
supportive references had been obtained from previous researchers regarding the same
field. Additionally the researcher had provided several graphical presentations in
supporting the results obtained from this study.
An overall summary of the findings, conclusion and recommendations from this study
are well presented though Chapter Five, where by the researcher conclusively presents
alignment between the key observations from the research objectives in connection with
the study results, and how FDI had impacted the society at individual to the country
level. The researcher provides some key areas where improvements would be crucial and
the needs for policy makers to generate strategies and guidelines as protective measures
to empower the locals against possible negative impacts from the inflow of FDI in
Tanzania economical environment. And finally, key resources and references are
presented at the last part of this report.
vi
TABLE OF CONTENT
CERTIFICATION ...................................................................................................... i DECLARATION AND COPYRIGHT .................................................................... ii ACKNOLEDGEMENT ............................................................................................ iii LIST OF ABBREVIATIONS .................................................................................. iv
ABSTRACT ................................................................................................................ v TABLE OF CONTENT ............................................................................................ vi LIST OF TABLES .................................................................................................... ix LIST OF FIGURES ................................................................................................... x
CHAPTER ONE ........................................................................................................ 1 PROBLEM SETTING ............................................................................................... 1
1.1 Introduction ................................................................................................ 1
1.2 Background Information of the Problem ................................................... 2
1.3 Statement of the Problem ........................................................................... 4 1.4 Research Questions .................................................................................... 4 1.4.1 General Research Question ........................................................................ 4
1.4.2 Specific Questions ..................................................................................... 5 1.5 Research Objectives ................................................................................... 5
1.5.1 General Objective ...................................................................................... 5 1.6 Specific Objectives .................................................................................... 5 1.7 Significance of the Study ........................................................................... 5
1.8 Scope of the Study ..................................................................................... 6 1.9 Organization of the Study .......................................................................... 6
1.10 Limitations of the Study ............................................................................ 6 1.11 Delimitations of the Study ........................................................................ 7
CHAPTER TWO ....................................................................................................... 8
LITERATURE REVIEW .......................................................................................... 8 2.1 Introduction ................................................................................................ 8
2.2 Definition of Key Terms ............................................................................ 8
2.3 Theories and Concepts ............................................................................. 11
2.3.1 The Impact of FDI-technology FDI in Manufacturing Industry .............. 14
2.3.1.1 Channels for Technology Transfers between FDI and Local Companies 15
2.3.1.2 Vertical Linkage with Buyers and Suppliers ........................................... 15
2.3.1.3 Horizontal Linkages through Demonstration and Competition ............... 16
2.3.1.4 Labour Migration ..................................................................................... 17
2.3.2 The Impact of FDI Revenue in Manufacturing Industry ......................... 17
2.3.2.1 Revenue Generation ................................................................................. 18
2.3.3 The impact of FDI Employment Generation in Manufacturing Industry 19
2.3.3.1 The Importance of Transnational Companies in Employment Generation21
2.3.4 The Impact of FDI Skills and Management in Manufacturing Industry . 23
2.4 Empirical Studies ..................................................................................... 25
2.4.1 Difference between US and Japanese Subsidiaries in Terms of Trade
Orientation ............................................................................................... 25
vii
2.4.2 The Case of Tanzania .............................................................................. 28
2.4.3 FDI as Export Enhancing Mechanism in Manufacturing Sector ............. 28
2.4.4 Global overview of Foreign Direct Investment in flows ......................... 29
2.4.5 FDI in and from Developing Asia Loses Growth Momentum ................ 30
2.4.6 FDI Growth in South America................................................................. 31
2.4.6 Foreign Direct Investment Inflow in Africa ............................................ 31
2.4.7 The Economy of Tanzania ....................................................................... 35
2.4.8 The Manufacturing Sector and the National Economy ........................... 35
2.4.9 FDI Manufacturing Sector and Performance in Tanzania ....................... 37
2.4.10 Major Production and Industrial Units .................................................... 38
2.4.10.1 Food, Beverages and Tobacco ................................................................. 38
2.5 Conceptual frame work of the Study ....................................................... 39
2.5.1 Variables Concepts .................................................................................. 41
CHAPTER THREE ................................................................................................. 43 RESEARCH METHODOLOGY ........................................................................... 43
3.1 Introduction .............................................................................................. 43
3.2 Research Setting ...................................................................................... 43
3.3 Research Design ...................................................................................... 43
3.3 Population and Sample Size .................................................................... 44
3.4 Sampling Techniques ............................................................................... 44
3.4.1 Sample Size.............................................................................................. 44
3.4 Data Collection Methods ......................................................................... 45
3.4.1 Secondary Data ........................................................................................ 45
3.4.2 Primary Data Collection Methods ........................................................... 45
3.5 Questionnaire ........................................................................................... 45
3.6 Interviews................................................................................................. 46
3.7 Data Analysis ........................................................................................... 46
3.9 Reliability and Validity of Data ............................................................... 47
3.9.1 Reliability................................................................................................. 47
3.9.2 Validity .................................................................................................... 47
CHAPTER FOUR .................................................................................................... 48
PRESENTATION OF FIDINGS, ANALYSIS AND DISCUSSION ................... 48
4.1 Introduction .............................................................................................. 48
4.2 Presentation of the Findings, Analysis and Discussion ........................... 48
4.3 The Impact of FDI technology in Manufacturing Industry in Tanzania .. 52
4.4 The impact of FDI Revenue in Manufacturing Industry in Tanzania...... 54
4.5 The impact of FDI Employment Generation in Manufacturing Industry in
Tanzania ................................................................................................... 55
4.6 The Impact of FDI Skills and Management in Manufacturing Industry in
Tanzania ................................................................................................... 57
viii
CHAPTER FIVE ...................................................................................................... 59
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS59
5.1 Introduction .............................................................................................. 59
5.2 Summary of the Findings ......................................................................... 59
5.3 Conclusion ............................................................................................... 60
5.4 Recommendations .................................................................................... 61
5.5 Policy Implication .................................................................................... 62
REFERENCES ......................................................................................................... 63 APPENDICES .......................................................................................................... 65 Appendix 1: Research Questionnaires and Interview Questions ............................... 66 Appendix 2: List of Visited Organizations/Entities .............................................. 70
ix
LIST OF TABLES
Pages
Table 2.1: Contribution of the Privatized Firms to the Tax Revenue in
Tanzania ........................................................................................... 18
Table 2.2: Importance of FDI for Employment In Transnational Companies
(TNCs), Selected Countries ............................................................. 22
Table 2.3: FDI Inflow and Outflow Forecasts | Economic Indicators .............. 34
Table 3.1: Justification Sample size and Selection Method .............................. 45
Table 4.1: Summary of the Questionnaires Distributed and Collected ............. 50
Table 4.2: Demographic Respondents .............................................................. 51
x
LIST OF FIGURES
Pages
Figure 2.1: Conceptual Framework ...................................................................... 41
Figure 4.1: Summary of Questionnaires Distributed and Collected ..................... 50
Figure 4.2: What is the Impact of FDI technology in Manufacturing Industry in
Tanzania? ............................................................................................ 53
Figure 4.3: What is the impact of FDI revenue in Manufacturing Industry?........ 54
Figure 4.4: What is the Impact of FDI Employment Generation in Manufacturing
Industry in Tanzania? ......................................................................... 56
Figure 4.5: What is the Impact of FDI Skills and Management in Manufacturing
Industry in Tanzania? ......................................................................... 57
1
CHAPTER ONE
PROBLEM SETTING
1.1 Introduction
This chapter covered the trend and historical background of Foreign Direct
Investment on manufacturing sectors in Tanzania economy, where by the statement
of the problem, research questions and objectives, significance or relevance to draw
the study and conceptual or theoretical framework of the analysis.
The growth in foreign direct investment (FDI) has been phenomenal in the last three
decades. Prior to the recent global economic and financial crisis, global FDI had
risen to an all time into significant figures. The production of goods and services by
many of the multinational corporations and their foreign affiliates continued to
expand with their FDI stock in the Tanzanian economy counting in good numbers.
According to the World Investment Report 2013 by the United Nations Conference
on Trade and Development (UNCTAD) which examines trends in Foreign Direct
Investment (FDI) flows, Tanzania registered significant increase in FDIs in 2012.
The report states that the flow to Tanzania increased by 38.77% between 2011 and
2012 from USD 1229.4 million to USD 1,706.0 million. This indicates that the
growth was driven by primary sectors particularly oil and gas exploration, with FDI
contributing more than 38% to Tanzania’s GDP.
The reports indicates further that between the year 2011 and 2012 FDI flows to
Tanzania have increased by USD 476.6 million making its share in the African
region to increase from 2.6% of 2011/12 to 3.4% 2012/13, while maintaining its
share in the East Africa at 27%.
(http://www.tanzaniainvest.com/economy/news/780-tanzania-significantly-increases-
fdi-inflow-in-2012)
2
Foreign private investments (FPI) particularly in the form of foreign direct
investment (FDI) has increased substantially after the Global crisis, especially in
mining, finance and manufacturing industries.
According to TIC Report (2012), Manufacturing, mining, finance and insurance
activities recorded higher profits. The overall net profits after tax increased
consistently at an annual average rate of 79.3 percent from 2009 to 2011. Highest
profits were recorded in manufacturing, mining, finance and insurance activities.
On the same report, indicates that employment level under FDI related companies
increase marginally. The report indicates that, the average total employment between
2008 and 2009 stood at 83,676 of which, 94.1 percent of the employees were local
and 5.9 percent were foreigners. There had been various developments due to inflow
of foreign investors in Tanzania with a significant number of varied impacts, which
are worth being studied, and my analysis focuses on the same.
1.2 Background Information of the Problem
Tanzania being least developing country with many untapped natural resources is
one of the global entities highly impacted by inflow of FDIs, and so the same for its
local economy and production/manufacturing industries. The Tanzanian economy is
relatively diversified and a number of opportunities remain untapped in many sectors
thus offer a wide range of opportunities to potential investors (URT, National
Strategy for Growth and Reduction of Poverty, 2009). Manufacturing sector is at its
infancy stage with few exploited areas while Trade sector has been marked with
negative trade balances and major exports have been dominated by unprocessed
agricultural commodities (URT, National Strategy for Growth and Reduction of
Poverty, 2009).Investment in manufacturing influences economic growth of any
country hence the government has continuously striving to improve the business
environment to make Tanzania a good investment destination(URT, National
Strategy for Growth and Reduction of Poverty, 2009).Tanzania government has
undertaken many economic reforms aimed at attracting investment including
formulation of investment policy (URT, National Strategy for Growth and Reduction
3
of Poverty, 2009). The Tanzania government enacted an Investment Act in 1997
which specifically aim at attracting investment which led to the creation of the one
stop centre for investors which promote and facilitate investment.
Tanzania manufacturing sector offers a wide range of opportunities to the potential
local and foreign investors. While the Ministry puts emphasis on four manufacturing
area which are textile, leather, Food processing and there are a number of other areas
which offer the best returns to both foreign and local investors (URT, National
Strategy for Growth and Reduction of Poverty, 2009).
Manufacturing is one of the key sectors of Tanzania’s economy. Statistics indicate
that manufacturing contribution to GDP in 2008 was 9.4%, and over the past eight
years, average growth rate of manufacturing sector in the country was 8.4%. In 2008
Tanzania’s growth rate of GDP was 7.4%, which was lower than the rate of growth
of the manufacturing sector (URT1, 2009). The manufacturing sector has a great
potential of economic transformation for achieving sustainable economic growth+
through its contribution to national income, employment, improvement in the
balance of payments and the overall economic development(URT, National Strategy
for Growth and Reduction of Poverty, 2009)
Currently, the span of Tanzania’s manufacturing industry is relatively narrow. It
comprises processing and packaging, textiles and garments, steel and steel products,
petroleum and chemicals, and non-metallic products. After many years of poor
performance most of these sectors have started to grow, predominantly as a result of
foreign investment in existing but underachieving domestic companies. New joint
ventures include cement companies, Tanzania Breweries, Tanzania Cigarette
Company, and Kilombero Sugar Company. It is expected that more private
investment will come forth as more manufacturing parastatals are privatised.
(Bigsten & Danielsson, 1999)
4
1.3 Statement of the Problem
Despite the somewhat positive development FDI manufacturing industry is still
facing difficulties. Some of the challenges facing manufacturing industry in Tanzania
are:- Poor technology, Insufficient industries/ factories, Unreliable market for the
final processed goods, High cost of power, unreliability of power and
underdeveloped infrastructure, Unreliable availability of raw materials, Small
number of trained manpower(Manufacturing struggle to compete, UNESCO 2010).
The sector is picking up slowly and is expected to do so for the foreseeable future
(Africa Competitiveness Report, 2013). The manufacturing sector has shown steady
growth over the years, registering 4% annual growth rate and a small contribution of
8% to the GDP (Tanzania Investment guide, 2013). The sector employs around
140,000 workers mainly in the urban areas, making 48% of monthly paid employees
(Tanzania Investment guide, 2013).
The sector contributes to the Tanzania economy through revenue collection of import
and export sales, corporate tax, and income tax, contributing about 20% foreign
exchange to the government, third after agriculture, and tourism (Tanzania
Investment guide, 2013).
The growth was mainly attributed to the economic liberalization measures, notably
the restructuring of the parastatal sector, implemented by the Presidential Parastatal
Sector Reform Commission. It is for this reason that, this research paper is designed
so as to assess the impact of foreign direct investment (FDI) on manufacturing sector
in Tanzania.
1.4 Research Questions
1.4.1 General Research Question
What are the impacts of Foreign Direct Investment in manufacturing Industry in Dar
es Salaam.
5
1.4.2 Specific Questions
Below are specific research questions that were guiding the research
(i) What is the impact of FDI technology in manufacturing industry in Tanzania?
(ii) What is the impact of FDI revenue in manufacturing industry in Tanzania?
(iii) What is the impact of FDI employment generation in manufacturing industry
in Tanzania?
(iv) What is the impact of FDI skills and management in manufacturing industry
in Tanzania?
1.5 Research Objectives
1.5.1 General Objective
This study intended to assess the impact of Foreign Direct Investment (FDI) in
manufacturing industry in Tanzania
1.6 Specific Objectives
Specific objectives are:-
(i) To assess the impact of FDI-technology FDI in manufacturing industry in
Tanzania
(ii) To analyze the impact of FDI revenue in manufacturing industry in Tanzania
(iii) To analyze the impact of FDI in employment generation in manufacturing
industry in Tanzania
(iv) To determine the impact of FDI in skills and management in manufacturing
industry in Tanzania
1.7 Significance of the Study
The research findings would be useful to various stakeholders, including:
(i) Tanzania takes it for granted that its FDI in manufacturing industry have
positive socio-economic impact to Tanzanians. This study would therefore
provide to Tanzania with a clearer picture of the impact of FDI in Tanzania.
The knowledge of the magnitude of FDI in manufacturing industry would
enable the Tanzanians and the government to plan and anticipate the risks and
its mitigants towards FDI in manufacturing industry. This study will also help
6
Tanzania as a whole in its strategic planning of FDI in manufacturing
industry in Tanzania.
(ii) The Government of Tanzania and interested stakeholders in FDI would use
the findings of this research to work on a strategy aimed at ensuring that FDI
in manufacturing industry minimizes the negative impact on FDI in
manufacturing industry.
1.8 Scope of the Study
This study was conducted at Dar salaam Tanzania covering FDI manufacturing
industry in Tanzania. Therefore the study was limited to manufacturing industry and
concentrated on the impact of FDI manufacturing industry in Tanzania which
included technology, revenue, employment generation, skills and management.
1.9 Organization of the Study
The organization of the study presents the arrangement, including the design - plan
that specifies how data from the study was collected and analyzed, The methodology
and procedures used in my study, which include research design, types of data
collected, and methods of data collection, data analysis and presentation and
discussion of the findings, as Chapters are highlighted below.
Chapter 1 provide introduction and the overview of the study. Chapter 2 contains the
theoretical framework. Chapter 3 discusses the methodology of the study. Chapter 4
will give an analysis of the results. Finally in chapter 5, conclusions will be drawn
from the measurement, followed by recommendations and limitations.
1.10 Limitations of the Study
The researcher faced the following limitations during his study;
Time Schedule, the time allocated for the research study was not enough to obtain
enough data; hence the conclusion arrived by relying on limited data obtained from
the organization.
7
Difficulties in Data Collection, it was not easy to retrieve data on sensitive
documents due to business ethics, thus lead insufficient data or non-response
problem. But other means of data collection such as observation was used to achieve
the objective of the study.
Confidentiality policy, some of the data and information are considered confidential
in the organization due to the nature of its operations, hence access and disclosure of
information required was practically impossible.
Poor respondents, this is due to unwillingness of respondents in giving data required
by the researcher. Sometimes the respondents were very busy with their daily
business activities.
1.11 Delimitations of the Study
With the concept that delimitation is any factor within the researcher’s control that
may affect external validity. External validity is the extent to which the findings of a
study can be applied to individuals and settings beyond those that were studied (Gall
et al., 1996, p. 473 – 478).
This study was conducted at within Dar salaam Tanzania covering FDI
manufacturing industry in Tanzania. Therefore the study was limited to
manufacturing industry and concentrated on the impact of FDI manufacturing
industry in Tanzania which included technology, revenue, employment generation,
skills and management, with enough support of references from Investment
promotion and monitoring centers including TIC, TCCIA, and EPZA, among others.
The sample population of this study was limited to FDI manufacturing industry in
Dar es Salaam Tanzania. Thus the researcher generalized the information that, the
selected sample was the true representative of the entire population of FDI
manufacturing industry in Tanzania.
8
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter contains a review of literatures related to the study. This chapter gives
out in detail the theoretical background laid down by different authors with respect to
the impact of FDI in manufacturing industry.
2.2 Definition of Key Terms
2.2.1 Foreign Direct Investment (FDI)
Buckley (2000), defines foreign direct investment (FDI) as a term used to denote the
acquisition abroad of physical assets, such as plant and equipment, with operational
control ultimately residing with the parent company in the home country. FDI may
take different forms such as the establishment of new enterprises in an overseas
country either as a subsidiary or branch, the expansion of overseas branch or
subsidiary and the acquisition of overseas business enterprise or its assets. FDI
differs from foreign portfolio investment where a stake is taken in an overseas
business without operational control, but with the view to acquiring an investment
income stream through dividends, capital gains and so on. FDI is furthermore,
defined as a situation where a foreign company create a subsidiary to provide goods
and services. Thus a firm undertakes FDI in a foreign market if it possessed an
ownership advantage over the local competitors. The ownership of the foreign
investment usually remains in the investing (home) country. FDI represents the
primary means of transfer of private capital (i.e. physical or financial), technology
personnel and access to the brand names and marketing advantage (Makola, 2003).
2.2.2 Types of Foreign Direct Investment
We distinguish between horizontal and vertical FDI. Horizontal FDI occurs when
the MNE enters a foreign country to produce the same product(s) produced at home
(or offer the same service that it sells at home) (Shenkar, 2007). It represents,
therefore, a geographical diversification of the MNE’s domestic product line. Most
9
Japanese MNEs, for instance, begin their international expansion with horizontal
investment because they believe that this approach enables them to share experience,
resources, and knowledge already developed at home, thus reducing risk. If FDI
abroad is to manufacture products not manufactured by the parent company at home,
it is called conglomerate FDI. (Shenkar, 2007). For example, Hong Kong MNEs
often set up foreign subsidiaries or acquire local firms in Mainland China to
manufacture goods that are unrelated to the parent company’s portfolio of products.
The main purpose is to seize emerging-market opportunities and capitalize on their
established business and personal networks with the mainland that Western MNEs do
not have. Vertical FDI occurs when the MNE enters a foreign country to produce
intermediate goods that are intended for use as inputs in its home country (or in other
subsidiaries’) production process (this is called “backward vertical FDI”), to market
its homemade products overseas, or to produce final outputs in a host country using
its home-supplied intermediate goods or materials (this is called “forward vertical
FDI”). An example of backward vertical FDI is offshore extractive investments in
petroleum and minerals. An example of forward vertical integration is the
establishment of an assembly plant or a sales outlet overseas. (Shenkar, 2007)
2.2.3 Manufacturing Industry
The Manufacturing industry involve the establishment of food manufacturing,
beverage and tobacco product manufacturing, textile, textile product mills and
clothing manufacturing, petroleum and coal products manufacturing, chemical,
plastics and rubber manufacturing, computer and electronic products manufacturing,
other manufacturing.
2.2.4 Socio-economy
The term “social economy” came into usage at the end of the 18th century as part of
the great political, economic and social debates that so characterized that
extraordinary period in Europe. Historically, the social economy refers to a
theoretical approach that was first developed by the utopian socialists especially the
early founders of the co-operative tradition – Owen, Fourier, Saint Simon and
Proudhon. Therefore, the social economy came to mean an enlargement of classical
10
economics to take into account the actual social conditions that accompany and
indeed underlie the creation and distribution of wealth, and to situate economic
behavior within the wider compass of social relations. This social perspective had a
direct bearing on the perception of capital, its proper function within society, and the
perpetual conflict between private and social interests over its control.
2.2.5 Foreign Direct Investment Inflow
FDI net inflows are the value of inward direct investment made by non-resident
investors in the reporting economy. (www.worldbankgroup.com)
Cash inflow in Tanzania had been much affected by the existing decision making
mechanism, governmental and political orientation and paradigm shifts during
decade after Tanzania independence (1960s) to the recent years. According to
Ngowi, (2011) FDI is a type of investment which is relatively infant as the
government had opted for a socialist path of economic development from 1967 to
around mid 1980s, following the Arusha Declaration. In mid 1980s, the government
initiated and implemented deliberate economic liberalization policies. These resulted
into the rise of FDI in Tanzania. For instance, FDI inflows increased from USD
2,418.7 million in 1999 to USD 3,776.6 million in 2001. Such investments were
concentrated in the sectors of manufacturing (33.4%), mining and quarrying (28%)
as well as agricultural (6.7%) (TIC, BoT and NBS, 2004: 23-24)4.
Ngowi (2011), describes further that, FDIs are normally undertaken by Multinational
Enterprises (MNEs) which must have a least 10% of equity shares. Entry into a
country is through two major modes, namely Greenfield and Merger and Acquisition
(M&A). By investing in new areas, FDIs are motivated by three major factors
namely, markets, resources and efficient environment for business.
2.2.6 Foreign Direct Investment Outflow
FDI net outflows are the value of outward direct investment made by the residents of
the reporting economy to external economies. (www.worldbankgroup.com)
11
Outflows and well as Inflows have more or less the same determinants. According to
economic theory, the three principal contributions of FDI to a host country are:(1)
the financial capital invested by foreign firms; (2) the export market access provided
by them; and (3) the faster technology development that is expected to occur through
technology transfer as part of the FDI package (Smitha, 2010)
2.3 Theories and Concepts
Nowadays the issue of foreign direct investments is being paid more attention, both
at national and international level. There are many theories that examine foreign
direct investments (FDI)’s issues, and main research on the motivations underlying
FDI were developed by J. Dunning, S. Hymer or R.Vernon (1977). Economists
believe that FDI is an important element of economic development in all countries,
especially in the developing ones.
2.3.1 Market Imperfection Paradigm
This paradigm evolved from Bain’s (1956; taken from Sharma &Erramilli, 2004)
Industrial Organizational theory of the firm according to which industries with few
competitors and high entry barriers obtain above normal returns. These imperfect
markets are created by controlling the number of existing and potential competitors
by merger/acquisitions, contractual bindings, and/or building higher entry barriers
through heavy investments in capital intensive production processes or product
differentiation. (Sharma &Erramilli, 2004) From this view two different theories
developed:
2.3.2 Hymer’s Theory
This theory was propounded by Sterfen Hymer. Hymer’s theory emerged in the
1960’s from his work on FDI. The Hymer theory contributed greatly on the insight of
market entry modes Multinational Corporation as it focuses on international
production rather than on trade .This theory considered that key requirements for an
individual firm a given industry are to invest overseas and become an MNC. Hymer
(1960) points out that home growing monopolists due to segmentation of national
market, brought monopolists in the contract. The completion between monopolistic
12
firms would generate peculiar externalities, through a merger of those firms, or
through acquisition of one firm by another.
Hymer`s(1960) thesis made two contributions. The first one is the Foreign Direct
Investment (FDI) which responds to attractive returns on capital. MNCs will thus
respond to overseas market if they ensure that they have positive returns on capital.
The second one is the association between market failure and FDI. Yamin (2000)
argued that the important theoretical shortcomings of the interest differential theory
was that it did not explain control. Furthermore FDI is referred as ``international
operation`` because of equity ownership, licensing, formal cartels or tactic collusion.
As a result the firm of one nationality can control the decision of another firm.
Yamin (2000) reveals that, Hymer`s thesis specifically , was concerned with internal
operation of the firm. Interest was mainly in explaining the initial act of international
operation rather than the growth of MNCs on the foreign market. Therefore the
theory raises the foundation for the firm to control other firms in the foreign
countries through merges rather than foreign direct investment.
2.3.3 IPLC Theory
This theory of International Product life Cycle (IPLC) was propounded by
Vemon(1966).The IPLC (International Product Life Cycle) theory explains the
advantages a foreign company which have beginning exporting process. After a
while companies in the host country will start producing substitutes and the foreign
company has to move the production to the host country to strengthen its market
position.
The study identified that, the manufacturing industry in Dar es Salaam had been
impacted especially due to introduction of large scale manufacturers and producers,
introducing large capitals, new products and services being as exports from the
investors country markets, in essence of substituting the same market products in
Tanzania as their host country. According to International Product Life Cycle Theory
(Vemon, 1966), in the early stages of a product's life cycle, a firm uses exporting. As
the product enters the maturity stage, some host country competitors that are
13
motivated by higher profit potential produce cheaper substitutes. This leads the firm
to transfer its production facility to host countries in order to strengthen its market
position.
2.3.4 Market Failure Paradigm
Market Failure Paradigm has evolved from Coase theory (1937), indicating that
choice of entry mode is based upon relative efficiency. Managerial capacity,
Eclectic, and Transaction Cost theories are grounded in this framework.
2.3.5 Managerial Theory
According to this theory, entry mode selection is a result of managerial decision
process, which is influenced by expectations of economic performance as well as the
dynamics of internal and external organization demands (Tallman and Shenker
1994).The emphasis of this paradigm is that in a process of choosing the entry mode
the mangers has to assess and investigate economic and non-economic factors and all
limited information a firm has in order to make satisfactory choice. According to Lou
(1999) decisions are made by humans, not mere driven by invisible forces of
technology, transactional costs and economics or resource dependency. Due to
managers their divisional, functional and interpersonal affiliations, manager may
variable degree access to relevant information, depending on the benefits and costs
that they may accrue personally. It is clear that management choice of entry made is
attempt to reduce uncertainty and improve performance in host market. Managers in
MNCs are constrained by idiosyncratic resources, world expansion strategies and
related to their inherently bounded rationality.
2.3.6 Transaction Costs Theory
According to Johny, (2006) transactions costs are costs incurred when completing a
transaction between a buyer and a seller. Apart from obvious costs such
transportation charges, sales taxes, and brokerage fees, there are often other costs
incurred as well. For example how to establish contact between buyer and seller,
translations in order to communicate in different languages, the risk that the product
14
might not follow agreed-upon specifications, misunderstandings in price
negotiations, etc
According to transaction cost theory, sole ownership or joint venture (FDI) is more
likely to occur when transaction costs (costs associated with negotiating, monitoring,
and enforcing a contract, Coase, (1937) and Williamson, (1975) are high. According
to transaction cost approach to entry mode, entry modes vary significantly in terms
of costs (investment costs, operating costs, opportunity costs, risks etc.) and benefits
to firms (Erramilli and Rao 1993).
2.3.7 Eclectic Theory
According to the Eclectic Paradigm (Dunning, 1977), in order to create value from
international production, three types of advantages must be present. That is,
ownership advantage (competitive or monopolistic advantage that helps a foreign
firm overcome the disadvantages of competing with local firms), location-specific
advantages (market potential and country risks that make conducting business in the
foreign market profitable), and market internalization advantages (contractual risks
that make controlling the foreign affiliate through FDI more beneficial than
licensing) (Agarwal & Ramaswami, 1992). Although the Eclectic Paradigm was
developed to explain the foreign production of manufactured goods (Dunning, 1988),
many researchers suggest that this paradigm is also applicable to service firms, since
it emphasizes intangibility as a necessary variable associated with ownership and
internalization advantages (Agarwal & Ramaswami, 1992; Dunning & Kundu,
1995). In short, many scholars demonstrate that a firm’s internal characteristics
influence the firm’s strategic behavior and performance (Dunning, 1993; Zou &
Cavusgil, 1996).
2.3.1 The Impact of FDI-technology FDI in Manufacturing Industry
The crucial role played by the technological progress in the economic growth is now
widely accepted (Romer, 1994). Technology can stimulate economic development
and industrialization. It can take two forms, both of which are valuable. Technology
can be incorporated in a production process (e.g., the technology for discovering,
15
extracting and refining oil) or it can be incorporated in a product (e.g., personal
computers) (Hill, 2000).
Some manufacturing industry in developing countries Tanzania inclusive have made
significant technological progress during the past two decades due to the good
number of TNCs investing technologically in developing countries in the form of
FDI, but the technology gap between rich and poor countries in manufacturing
industry remains wide in general. Being major creators of new and advanced
technologies, FDI have the potential to play an important role in narrowing this
gap.FDI is the key source of technology, they are very important in high technology
activities and in providing an entire package of knowledge and skills.
Moreover FDI in the form of MNEs can introduce modern technologies, some of
which are only available through FDI, some through technology licenses. These
corporations can stimulate the technical efficiency of local firms by providing
assistance, acting as role models, and intensifying competition.
2.3.1.1 Channels for Technology Transfers between FDI and Local Companies
The existing literature suggests some channels by which technology transfer and
associated innovation/technological capability building through FDI occurs. This is
either directly through linkage or indirectly through spillovers (Lall & Narula,
Gachino, 2006). Specifically the channels include vertical linkage, horizontal linkage
and labour migration.
2.3.1.2 Vertical Linkage with Buyers and Suppliers
MNEs may transfer technology to firms that supply them with intermediate goods, or
to buyers of their own products. For some time now, it has been recognized that
MNEs may benefit the host country via the backward and forward linkages they
generate. Backward linkages are relations with suppliers in the factor inputs market.
Forward linkages refer to relations with buyers – either consumers or other firms
using the MNEs intermediate products as part of their own production process in the
factor output market.
16
Forward linkages occur with firms’ buyers. This can be distributors, which can
benefit from the marketing and other knowledge of the MNE, or – in case of
intermediate products – downstream firms who can use higher quality and/or lower
priced intermediate goods in their own production processes. Downstream firms can
benefit from lower prices arising from increased competition in their supply market
(Pack and Saggi, 1999) and consumers thus benefit from lower-priced final products.
Aitken and Harrison (1991) find that spillovers from forward linkages are important
in most industries – and in fact, they argue that the downstream effects of FDI are
generally more beneficial than the upstream effects.
Generally, in regard to backward and forward linkage formation, the literature
suggests that linkages are not automatic, but there are factors that govern them.
Firstly, it seems that linkages are more pronounced the larger the size of the host
market; and so are the technological capabilities of the local suppliers. Secondly,
according to a model of Rodríguez-Clare (1996), more linkages are created when the
production process of the MNEs uses intermediate goods intensively; when there are
large costs of communication between headquarters and the affiliate production
plant; and when the home and host countries are not too different in terms of the
variety of intermediate goods produced. Government policies can also promote
linkage creation through policies requiring a minimum of local content.
For the Tanzanian case, backward and forward linkages are potential vehicles for
contribution of FDIs in the local technological capability building. This study
attempted to document evidence for this. The study also attempted to identify factors
that facilitate or prevent such linkages, and the extent of knowledge transfer through
these linkages.
2.3.1.3 Horizontal Linkages through Demonstration and Competition
Related to the issue of vertical linkages, is the diffusion of technology through
horizontal ‘linkages’ with the competitors of the MNEs affiliates. This diffusion of
technology takes place through either demonstration effects or competition effects.
17
The demonstration effect happen when local companies are, exposed to the superior
technology of the MNE, which may lead local firms to update their own production
methods (Saggi, 2000). When an MNE starts using a specific technology that has not
yet been used in the host economy, its competitors may start imitating the
technology. Often, the introduction of a new technology by an MNE reduces the
(subjective) risk for local firms to use the same technology. Local firms may lack the
capacity, financial resources or information required to acquire the necessary
knowledge or to adopt the technology to local circumstances. However, when a
certain technology used by an MNE succeeds in the local environment this may
trigger a wider adoption by local firms in the host country.
2.3.1.4 Labour Migration
Another way, apart from linkages, through which technology may be transferred and
disseminated in a host country, is through labour migration. Workers employed by
MNEs affiliates acquire knowledge of its superior technology and management
practices, either through training or hands-on experience. By switching employers to
local firms or setting up their own businesses, the technology is spread (Glass and
Saggi, 1999, Gachino 2006).
2.3.2 The Impact of FDI Revenue in Manufacturing Industry
FDI in manufacturing industry has two kinds of impacts. First, such investment
affects the production of domestic firms via competition effect and technological
spillovers. The competition effect reduces production of domestic firms and thereby,
lowers the degree of corporate tax revenue while the technological spillovers could
be positive and negative. Secondly, FDI in manufacturing industry create inter-
industrial effects including two opposite effects. On one hand, by lowering the
production of domestic firms in the host country, FDI in manufacturing industry
shrink the degree of backward linkages and hence, reduce the level of corporate tax
revenue.
18
2.3.2.1Revenue Generation
Government revenue contribution is also very important for economic development.
Table 2 below shows the contribution of 10 privatized industries (to foreign
investors) in tax revenue in Tanzania between 2001 and 2003. According to the
Table the privatized companies contributed about 6.7, 9.1 and 9.2 percent of total tax
revenue in 2001, 2002 and 2003 respectively. However, there have been some policy
conflicts between revenue generation and FDI attraction through tax incentives. Tax
incentives can cost the government a lot of money. For example, if you consider the
companies which have privatized in 2000, such as Carnaud Metal Box, and
DAHACO, a three year tax holiday given to the companies, could have cost the
country loss of about 0.2 and 0.4 percent of total tax revenue during the 2001-2003
Table 2.1: Contribution of the Privatized Firms to the Tax Revenue in Tanzania
Name of Company
Year of
Privatization Year
Tax Contribution
(Tshs. Millions)
% of Total Tax
Revenue
TBL 1993 2001 30,052.00 3.2
2002 45,065.50 4.3
2003 58,665.80 4.8
TCC 1995 2001 11,445.80 1.2
2002 15,781.30 1.5
2003 24,443.20 2
TZ PORTLAND
CEMENT 1997 2001 3,445.10 0.4
2002 4,083.20 0.4
2003 6,217.10 0.5
TZ. DISTILLERIES 2001 4,163.50 0.4
2002 5,781.50 0.6
2003 3,198.80 0.3
Source: Adopted from Ulanga (2005)
19
2.3.3 The impact of FDI Employment Generation in Manufacturing Industry
The effects on employment associated with FDI are both direct and indirect. In
countries where capital is relatively scarce but labour is abundant, the creation of
employment opportunities – either directly or indirectly – has been one of the most
prominent impacts of FDI. The direct effect arises when a foreign MNE employs a
number of host country citizens. Whereas, the indirect effect arises when jobs are
created in local suppliers as a result of the investment and when jobs are created
because of increased local spending by employees of the MNE. In order to illustrate
the employment effects in host country we will use the example of Toyota’s
investment in France. Based on a data published (Hill, 2000) this investment created
2000 direct jobs and conceivably another 2000 jobs in supporting industries
There are three direct sources of foreign affiliate employment, which depend on the
mode of entry chosen by the FDI via: new start-ups; plant expansions; and take-overs
or mergers and acquisitions (M&A). A Greenfield entry on a new site can be seen to
increase employment immediately and to add to the number of competitors in the
industry. A take-over of an existing firm (or part of a firm) may actually reduce
employment in its immediate effect and may reduce the number of competitors by
taking out a local firm and possibly ending imports (Buckley &Artisien, 1987).
Alongside their first round or direct employment effects,
FDI also contribute indirectly to the process of job creation. FDI contributes to the
job creation process through its purchases from suppliers, who in turn purchase from
other suppliers, who thereby also contribute to the job generation process (Jéquier,
1989; Lall, 1983).
Indirect positive effects arise from: subcontracting; transport services; demand for
other services; from marketing facilities; from government infrastructure; from
construction expenditure and; from reinvestment of funds received as a result of a
takeover by a foreign entrant. The presence of FDI subsidiaries also contributes
indirectly to the process of job displacement/destruction. These negative external
20
effects can arise from replacement of host country suppliers by foreign suppliers
after foreign entry (Buckley&Artisien, 1987; Jéquier, 1989).
FDI do in fact lead to improvements in employment levels at the national level are
the studies of Braunstein and Epstein (2002), Spiezia (2004), and Vacaflores (2011).
Vacaflores (2011) examines the effect of foreign direct investment (FDI) on
employment generation for a group of Latin American countries in the period 1980-
2006 and finds that FDI has a positive and significant effect on the employment
generation in host countries, which is driven by its effect on male labour force. This
positive effect is particularly important for less developed economies, periods with
low inflation, and for the later period of the sample, but suggests that only countries
with high level of informality and those attracting low average inflows of FDI accrue
this benefit.
Lee and Vivarelli (2004) point out that even if trade and FDI are expected to
positively affect employment, employment creation cannot be automatically assured,
as the employment effect can be very diverse in different areas of the world. Spiezia
(2004) finds that the impact of FDI on employment is increasing with per-capita
income for a group of 49 countries, but its effect is not significant for low-income
developing countries. Vacaflores and Mogab (2012) find that the subsidiaries in Asia
are the ones that respond to increases in FDI by the largest additions in employment,
followed by subsidiaries in the Americas, but that only those subsidiaries in the
Manufacturing and Service sectors present a statistically significant influence.
According to Liu (2011) research in China in secondary and tertiary industry for the
period 1985-2008, growth of FDI in the long run would promote employment, and it
is especially true for tertiary industry, where bidirectional linkage between FDI and
employment exists; in the short term FDI has limited and even negative effect on
employment, with the latter indirectly increasing the former.
Banga (2005) in its analysis for 78 three digit level industries in India have shown
the impact of FDI, trade and technological progress on wages and employment. The
21
findings show that the higher extent of FDI in an industry leads to higher wage rate
in the industry; it has no impact on its employment. Similarly technological progress
is found to be labour saving. To estimate dynamic labour demand functions for blue
and white collar workers,
Arellano and Bond (1991) refined a panel data analysis. Through the GMM
estimator, they found FDI had a significantly positive, though quantitatively modest
impact on manufacturing employment in Mexico. It also showed there was a positive
effect on blue collar employment. But it was diminished with the increase of skill
intensity of manufacturing industries. The estimates of impact of FDI in U.S. by
Glickman and Woodward (1989) using the survey data from the Bureau of Economic
Analysis (BEA) have shown a substantial increase in employment between 1982 and
1986.
In terms of the indirect effect, Sjöholm (2008) studied the relationship between FDI
and technology and found a clear linkage between the employment and technology.
On the one hand, new technology may make firms more competitive which permits
them to grow and employ more workers. On the other hand, new technology may
also decrease demand for labour by substituting the low skilled employees with
fewer high skilled employees. Hence, the change of technology policies will affect
the job creation. Moreover, firm ownership also is an important part of job creation.
2.3.3.1 The Importance of Transnational Companies in Employment Generation
Transnational Companies (TNCs) are the main providers of FDI and are thus an
important source of employment. The transnationality index (TNI) reveals the
importance of TNCs in a domestic economy taking into account the production
potential stemming from FDI inflows and the outcome of that investment. Table 2
clearly shows that the three countries have a high TNI compared with other
countries. This is especially true for Brazil and Argentina where TNCs are more
important than in India, France of even China. Mexico has a lower, but still high
TNI, of 11.6 per cent. However, data for China and India suggest that workers are
22
employed in sectors of higher labour intensity than in the Latin American countries
(UNCTAD data, 2002)
Table 2.2: Importance of FDI for Employment In Transnational Companies
(TNCs), Selected Countries
Countries Transnational Index % Employment
Argentina 16.6 8
Brazil 17.2 5
Mexico 11.6 7
India 2.9 4.1
China 14.4 9.5
France 9.4 4.2
Source: UNCTAD, 2002.
For example Employment in the Mexican automobile sector rose by 29.3 per cent
and real wages by 15.6 per cent between 1996 and 1999. The main reason for this
may be found in the higher level of Greenfield investments in Mexico and increased
exports to the United States market.
The employment effects of FDI are of considerable interest to host developing
countries: in many of them, a key requirement for sustainable growth is the ability to
absorb the human resource released from agriculture into manufacturing and service
industries. The quantitative effects of FDI on employment globally have been found
to be modest, but somewhat larger in host developing than host developed countries,
and especially so in the manufacturing sector (World Investment Report, 1999).
According to Nzomo (1971), a study done in Kenya showed that FDI made a modest
contribution with regard to the total employment creation since direct employment
creation was small while no evidence on its indirect employment creation. This may
suggest that foreign firms operated in that country have no production linkages with
local firms. On the other hand, Aaron (1999) states that FDI was likely directly
responsible for 26 million jobs in developing countries worldwide. In addition, for
every single direct job created by FDI it was estimated that approximately 1.6
23
additional jobs were indirectly created through production linkages between FDI and
local sectors.
2.3.4 The Impact of FDI Skills and Management in Manufacturing Industry
Knowledge spillovers take place when the multinational firm ‘cannot capture all
quasi-rents due to its productive activities or to the removal of distortions by the
subsidiary’s competitive pressure’ (Caves, 1974). They may affect the production
performance of local firms in the same industry as well as of those which are located
in the same region as the MNEs. Technological and managerial knowledge are the
two major types of knowledge embedded in foreign direct investment. Managerial
knowledge, including the current endowment of managerial intellectual property of a
firm and its managerial and organizational practices, plays an important role in
determining the productive efficiency of a firm and hence its competitive advantage
(Teece and Pisano, 1994). It covers all aspects of the management of the firm,
ranging from strategic planning and decision making to human-, financial- and
information-resource management as well as operations and marketing management.
Some managerial knowledge is tacit and imperfectly imitable; other forms of
managerial knowledge such as the majority of management practices can be codified
and are hence transferable.
By transferring knowledge, FDI will increase the existing stock of knowledge in the
host country through labour training, transfer of skills, and the transfer of new
managerial and organizational practice. Foreign management skills acquired through
FDI may also produce important benefits for the host countries. Beneficial spin-off
effect arise when local personnel who are trained to occupy managerial, financial and
technical posts in the subsidiary of a foreign MNE leave the firm and help to
establish local firms. Similar benefits may arise if the superior management skills of
a foreign MNE stimulate local suppliers, distributors and competitors to improve
their own management skills.
Workers gain new skills through explicit and implicit training. In particular, training
in foreign firms may be of a higher quality given that only the most productive firms
24
trade. Workers take these skills with them when they re-enter the domestic labour
market. Training received by foreign companies sometimes may be considered under
the general heading of ‘organization and management’, meaning that the host
country will benefit from the ‘managerial superiority’ of MNCs. Lall and Streeten
(1977) emphasize three kinds of managerial benefits:
(i) Managerial efficiency in operations arising from better training and higher
standards;
(ii) Entrepreneurial capability in seeking out investment opportunities;
(iii) Externalities arising from training received by employees (such as technical,
executive, accounting and so on) (Dunning, 1993).
When an MNE transfers practices or technology to affiliates, it has to train its
employees in the host country in question. This new managerial and technical
knowledge can spill over to host country firms when employees with these new skills
move to other firms or set up their own businesses. A number of empirical studies
suggest that the movement of workers between firms is the most important
mechanism for technology and knowledge spillovers83
Tanzania Cigarette Company (TCC) gives a good example of the importance to
human resource training and development. For TCC, the human capital component
was vital in the achieving various forms of upgrading and benefiting from the forms
of technology transfer from the parent company. In the immediate aftermath of
privatisation, staff complement downsizing was undertaken35. The workforce was
reduced from 1300 (750 on the production floor) to 730 (300) over four years. The
main downsizing was undertaken in the production floor, as a result of extensive
automation of plant and equipment which led to a drastic decrease in manual jobs.
There are only 3 expatriates in the company who are employed in key executive and
technical roles. Locals are employed in key management positions (such as technical,
administrative and sales and marketing positions) as a result of the extensive
capabilities and host country experience they possess. (Kabelwa, 2006)
25
TCC has now put in place extensive internal and external training programs. TCC is
one of the main employers in the host country, and seeks and retains the best young
graduates in Tanzania, providing them with career advancement opportunities as well
as external training and secondments to other plants around the world. TCC set up an
on-site training centre late 1997 to spearhead this strategy. The initial post-
privatization training mainly focused on generic training to enhance employee
awareness of organizational change, professionalism and life skills. Substantial
changes to the work ethic inherited from parastatal period were required. The
continuing training initiatives addressed employees’ individual development needs
and increase effectiveness, particularly of those employees at the production floor
without basic skills but who were deemed to be trainable. (Kabelwa, 2006)
Other training programs have been aimed at broadening managers’ international
exposure within the parent network and the training centre in St. Petersburg, Russia.
For example, a system of secondment of TCC personnel to sister affiliates has picked
momentum in recent years and a number of local personnel from middle
management upwards have already benefited. These training programs are
emphasized for the development of senior management, i.e. supervisory and
technical staff. A threshold level of capability for production floor workers was
important as the company has been modernizing its plant and equipment. For
example, suppliers provide training on specific machinery prior to commissioning so
that when the actual machinery is installed in the Dar es Salaam plant, it can be
utilised immediately without undue work stoppages. Normally, employees short term
ad-hoc training courses with direct relevance to on-the-job specific tasks. (Kabelwa,
2006)
2.4 Empirical Studies
2.4.1 Difference between US and Japanese Subsidiaries in Terms of Trade
Orientation
Kojima (1985), using the survey data compiled by the Investment Commission of
Taiwan for 1982, investigated differences between US and Japanese subsidiaries in
terms of trade-orientation. The analysis for all industries showed that both export-
26
sales and import content ratios were slightly higher for US firms than for Japanese
firms. However, these firms tended to have large differences in the sub-sectors of
manufacturing. More specifically, Japanese firms were more export-oriented than US
firms in three resource-based industries, like non-metallic minerals, food &
beverages, and plastic & rubber as well as in machinery equipment and chemicals,
while US firms were more export-oriented than Japanese firms in textiles and
electrics & electronics. This suggested that even though Japanese and US FDI
seemed to have significantly different export behaviors over a number of sectors,
limited support for Kojima’s hypothesis came from the resource-based industries. On
the other hand, US firms seemed to import more foreign inputs than their Japanese
counterparts in most of these sectors, except for non-metallic minerals and
chemicals.
According to UNCTAD review Report, (UNCTAD, 2012), Global FDI inflows rose
in 2011 by 17 per cent compared with 2010, despite the economic and financial
crisis. The rise of FDI was widespread, including all three major groups of
economies −developed, developing and transition − though the reasons for this
increase differed across the globe. During 2011, many countries continued to
implement policy changes aimed at further liberalizing and facilitating FDI entry and
operations, but also introduced new measures regulating FDI.
However the report states that, FDI flows to developed countries rose by 18 per cent,
but the growth was largely due to cross-border merger and acquisitions (M&As), not
the much-needed investment in productive assets through green-field investment
projects.
Unlike poor countries, the UNCTAD reports says that, the rise in FDI in developed
economies, mainly in European countries, was driven by cross-border M&As which
in most cases appear to be driven by corporate restructuring, stabilization and
rationalization of their operations, improving their capital usage and reducing the
costs. Rising cross-border M&As in developed countries were partly due to the sale
of non-core assets.
27
The report says that, unlike Asia and Latin America, the fall in FDI flows to Africa
in 2009 and 2010, Tanzania inclusive, continued into 2011, though at a much slower
rate. The recovery in flows to South Africa did not offset the significant fall in FDI
flows to North Africa: Egypt, Libya and Tunisia all witnessed sharp declines in FDI
flows during the year. Central and East Africa experienced overall decreases in
inward investment flows. West and Southern Africa, meanwhile, saw robust growth
during the year.
According to Page and te Velde (2004); the stock of African FDI in Tanzania was
US$155.4 m in 2001, 44% of the total. More than half (24%) was from South Africa,
and this will be higher now because South Africa has taken over Ashanti; Ghana then
still had 5%; Mauritian and Kenyan FDI stocks in Tanzania were both about 5%,
Uganda had a small share. For inflows of new investment, Africa again was
responsible for 44%, almost entirely from South Africa. South African investment
has been in mining (as noted), brewing, sugar, oil, banking, hotels, and the airport. It
is therefore becoming a major influence on the economy, and this has been reflected
in its external policy. Kenyan investment, though smaller in value, is responsible for
more companies. Tanzania, in spite of its location and its ties through the East
African Cooperation to Kenya and Uganda, has remained a member of SADC, and
left COMESA (Kenya and Uganda are in COMESA, not SADC). South Africa
accounted for more than a third of FDI in Tanzania in the last decade.
Moshy & Assey (2004); describes the same in relation to Tanzania that; Since early
1980s, governments of developing countries have been supporting and implementing
strategies of encouraging competitive free markets, privatization of state owned
enterprises (parastatals), moving from closed (no trade) to open (trading) economies
and opening up the domestic economy through free trade and attracting foreign direct
investment. Says that, Tanzania has continued to be politically stable (relatively)
even after two multiparty elections done in 1995 and 2000. Since 1995, Tanzania had
invigorated its efforts towards development of a stable macroeconomic environment,
privatization, the elimination of institutionalized corruption, the promotion of good
governance, the support of multiparty democracy and the development of civil
28
societies. These efforts have resulted in achieving its developmental objectives and
have accorded the country high reputation among the international circles. All these
trends played an major role in attracting Direct Investments from Foreign
institutions, with a massive group originating from South African companies.
2.4.2 The Case of Tanzania
Empirically, the study identified that, since the recent years Tanzania has seen
significant improvements in the conditions governing FDI including, but not limited
to, economic reform, democratization, privatization, greater peace and political
stability, these trends raise important questions about foreign investors, having high
influx of foreign investments of small, medium and large scale manufacturing,
production, mines, power productions, services and explorations, among many
others. The surge in production investments such as TCC, TBL, Bakhresa and many
other investment outlets have a clear link to the output of my research.
2.4.3 FDI as Export Enhancing Mechanism in Manufacturing Sector
Historical observations and theory tell that FDI follows trade. The theory of optimal
timing of FDI stipulates that once a company has developed a certain market share in
a foreign market by exporting, it is likely to become a foreign direct investor. This is
because higher fixed costs associated with a production plant abroad-as compared to
exports-are compensated by lower variable costs when economies of scale can be
realised (cf. Buckley, Casson, 1985). Roch (1973) found a significant correlation
between US trade with developing countries and US FDI in these countries. He
further noted that firms supply foreign markets initially with exports, but when they
reach a critical size or when tariff and non-tariff barriers set in, the exporter may
have to shift to local production involving FDI. Trade relations enable investors to
gain more knowledge not only about the final demand for their products in the
partner country but also about its factor markets which are essential for FDI
decisions. The above empirical studies coincide with Mukwano Industries (Uganda)
and South African Breweries which initially supplied the Tanzanian market through
exports before they crossed the borders to set up subsidiary production plants locally.
29
This sets a challenging stage to Tanzanian exporters who should gauge themselves
and attempt to exploit external markets through cross border investments.
2.4.4 Global overview of Foreign Direct Investment in flows
According to preliminary estimates, global FDI flows have declined in 2012 by 14%
from 2011 to USD 1.4 trillion in spite of the 22% increase in the last quarter but
remain comparable to global FDI flows in 2010. OECD investments abroad declined
by 15% to USD 1100 billion in 2012 accounting for 77% of global FDI (80% in
2011) and OECD attracted only USD 686 billion of FDI (or 48% of global FDI)
representing an annual decrease of 21%. Investment to and from the European
Union, in aggregate, declined by around 25%. China became the first FDI destination
in 2012 and the United States maintained its position as the leading investing
economy. (OECD FDI inflows 2013)
In 2012, 44% of global FDI inflows were hosted by only five countries. China
attracted the lion’s share by USD 253 billion (or 18% of total) followed by the
United States (USD 175 billion), Brazil (USD 65 billion), the United Kingdom (USD
63 billion) and France (USD 62 billion).(OECD FDI inflows 2013)
In spite of the 25% drop from USD 234 billion in 2011, accounting for the decrease
in both equity and intercompany loans, the United States remains the first FDI
destination within the OECD area. FDI in Germany, which ranked as the 5th largest
host economy within the OECD in 2011, declined by 87% in 2012 to USD 6 billion,
ranking at the 20th position. This development is due to disinvestments (in equity) by
foreign investors and reimbursements of intercompany debt. On the other hand,
inflows to Japan recovered modestly in 2012 increasing from USD -1.8 billion in
2011 to USD 2.1 billion in 2012, well below the inflows recorded in 2008 and 2009
(USD 24 billion and USD 12 billion, respectively). (OECD FDI inflows ,2013)
Some EU countries recorded negative inflows such as Belgium at USD -1.6 billion
(declining drastically from USD 103 billion in 2011) as a result of major
disinvestments in the fourth quarter of 2012. However, the impact of some of the
30
decreases recorded in the OECD area in 2012 were offset, in part, by significant
increases. FDI inflows to France increased by 52%, to USD 62 billion (ranking as
3rd OECD recipient). Due to historically high levels of intercompany loans, inflows
to Luxembourg reached USD 58 billion, excluding investments in special purpose
entities hosted in this country. (OECD FDI inflows, 2013)
2.4.5 FDI in and from Developing Asia Loses Growth Momentum
Collectively, the large emerging economies of Brazil, Russia, India, China, and
South Africa are known as the BRICS. U.S. data show their investments in the
United States remain tiny. Last year, BRICS represented less than one percent of
total investment inflows. At $1.4 billion, China was the largest BRICS investor in the
United States. Its investment rose by 163 percent over 2011. South Africa’s
investment also more than doubled between 2011 and 2012 to more than $500
million. (FDI- USA 2013 report)
In contrast, Brazil and Russia posted disinvestments in 2012, while Indian
investment in the United States shrank over the previous year. Brazil recorded the
largest investment in the United States for a single year over the past three years
among the BRICS, at $3.7 billion in 2011. (FDI- USA 2013 report)
While BRICS investment in the United States remains small, these countries are
investing more globally. According to UNCTAD’s WIR, their combined investment
represented 10 percent of total worldwide outflows in 2012. Interestingly, the BRICS
have become significant investors in Africa. (FDI- USA 2013 report)
FDI flows to developing Asia decreased by 7 per cent to $407 billion in 2012. This
decline was reflected across all sub-regions but was most severe in South Asia,
where FDI inflows fell by 24 per cent. China and Hong Kong (China) were the
second and third largest FDI recipients worldwide, and Singapore, India and
Indonesia were also among the top 20. Driven by continued intraregional
restructuring, lower-income countries such as Cambodia, Myanmar, the Philippines
and Viet Nam were attractive FDI locations for labour-intensive manufacturing. In
31
West Asia, FDI suffered from a fourth consecutive year of decline. State-owned
firms in the Gulf region are taking over delayed projects that were originally planned
as joint ventures with foreign firms. (World investment report, 2013)
Total outward FDI from the region remained stable at $308 billion, accounting for 22
per cent of global flows (a share similar to that of the European Union). The
moderate increase in East and South-East Asia was offset by a 29 per cent decrease
in outflows from South Asia. Outflows from China continued to grow, reaching $84
billion in 2012 (a record level), while those from Malaysia and Thailand also
increased. In West Asia, Turkey has emerged as a significant investor, with its
outward investment growing by 73 per cent in 2012 to a record $4 billion. (World
investment report, 2013)
2.4.6 FDI Growth in South America
FDI to Latin America and the Caribbean in 2012 was $244 billion, maintaining the
high level reached in 2011. Significant growth in FDI to South America ($144
billion) was offset by a decline in Central America and the Caribbean ($99 billion).
The main factors that preserved South America’s attractiveness to FDI are its wealth
in oil, gas and metal minerals and its rapidly expanding middle class. Flows of FDI
into natural resources are significant in some South American countries. FDI in
manufacturing (e.g. automotive) is increasing in Brazil, driven by new industrial
policy measures. Nearshoring to Mexico is on the rise. Outward FDI from Latin
America and the Caribbean decreased moderately in 2012 to $103 billion. Over half
of these outflows originate from OFCs. Cross-border acquisitions by Latin American
TNCs jumped 74 per cent to $33 billion, half of which was invested in other
developing countries. (World investment report, 2013)
2.4.6 Foreign Direct Investment Inflow in Africa
Africa is one of the few regions to enjoy year-on year growth in FDI inflows since
2010. Investment in exploration and exploitation of natural resources, and high flows
from China both contributed to the current level of inward flows. More generally,
the continent’s good economic performance – GDP grew at an estimated 5 per cent
32
in 2012 – underpinned the rise in investment, including in manufacturing and
services. Investor confidence appears to have returned to North Africa, as FDI flows
rose by 35 per cent to $11.5 billion in 2012. Much of the growth was due to a rise in
investment in Egypt. (World investment report, 2013)
Whereas the country experienced a net divestment of $0.5 billion in 2011, it attracted
net investment inflows of $2.8 billion in 2012. Across the sub-region, FDI flows also
increased to Morocco and Tunisia, but decreased to Algeria and the Sudan. (World
investment report, 2013)
In contrast, FDI flows to West Africa declined by 5 per cent, to $16.8 billion, to a
large extent because of decreasing flows to Nigeria. Weighed down by political
insecurity and the weak global economy, that country saw FDI inflows fell from $8.9
billion in 2011 to $7.0 billion in 2012.Meanwhile, Liberia and Mauritania both
experienced a surge in inward FDI flows. In Mauritania, FDI inflows doubled to $1.2
billion, which can be attributed in part to the expansion in mining operations (copper
and gold) by Canada-based First Quantum Minerals and Kinross. (World investment
report, 2013)
Central Africa attracted $10 billion of FDI in 2012, a surge of 23 per cent on the
previous year. Slowing FDI inflows to the Congo were offset by an increase to the
Democratic Republic of the Congo, where inward FDI flows jumped from $1.7
billion to
FDI inflows to Africa rose for the second year running, up 5 per cent to $50 billion,
making it one of the few regions that registered year-on-year growth in 2012. FDI
outflows from Africa almost tripled in 2012, to $14 billion. TNCs from the South are
increasingly active in Africa, building on a trend in recent years of a higher share of
FDI flows to the region coming from emerging markets. In terms of FDI stock,
Malaysia, South Africa, China and India (in that order) are the largest developing-
country investors in Africa. (World investment report, 2013)
33
FDI inflows in 2012 were driven partly by investments in the extractive sector in
countries such as the Democratic Republic of the Congo, Mauritania, Mozambique
and Uganda. At the same time, there was an increase in FDI in consumer-oriented
manufacturing and services, reflecting demographic changes. (World investment
report, 2013)
34
Table 2.3: FDI Inflow and Outflow Forecasts | Economic Indicators
Markets
Currency
Government Bond 10Y
Stock Market
Commodity
Money
Interest Rate
Interbank Rate
Loans to Private Sector
Bank Lending Rate
Gold Reserves
Money Supply
Government
Government Budget
Government Budget Value
Government Debt To GDP
Government Spending
Credit Rating
Taxes
Corporate Tax Rate
Personal Income Tax Rate
Sales Tax Rate
Social Security Rate
Social Security Rate For
Companies
Social Security Rate For
Employees
GDP
GDP
GDP Annual Growth Rate
GDP Growth Rate
GDP per capita
GDP per capita PPP
GDP Constant Prices
Gross National Product
Gross Fixed Capital
Formation
Labour
Unemployment Rate
Youth Unemployment
Rate
Long Term
Unemployment Rate
Labor Force Participation
Rate
Employed Persons
Job Vacancies
Labour Costs
Population
Productivity
Unemployed Persons
Wages
Minimum Wages
Wages in Manufacturing
Retirement Age Men
Retirement Age Women
Prices
Inflation Rate
Consumer Price
Index CPI
Core Consumer
Prices
Core Inflation Rate
Export Prices
GDP Deflator
Import Prices
Producer Prices
Food Inflation
Trade
Balance of Trade
Capital Flows
Current Account
Current Account to
GDP
Exports
External Debt
Imports
Terms of Trade
Foreign Exchange
Reserves
Foreign Direct
Investment
Remittances
Tourist Arrivals
Business
Business
Confidence
Services PMI
Manufacturing PMI
Bankruptcies
Capacity Utilization
Car Registrations
Changes in
Inventories
Industrial
Production
Crude Oil
Production
New Orders
Construction
Output
Manufacturing
Production
Leading Economic
Index
Housing Index
Consumer
Consumer
Confidence
Consumer Spending
Disposable Personal
Income
Personal Savings
Retail Sales MoM
Retail Sales YoY
Source: http://www.tradingeconomics.com/fdi forecas
35
2.4.7 The Economy of Tanzania
Following independence in 1961 Tanzania embarked on a socialist path that placed
wide emphasis on social development (alleviation of illiteracy, poverty, and disease)
at the expense of the productive sectors. A politically determined direction, which
had the adverse effect of leading the domestic economy into a very strained
condition. (Manufacturing sector in Tanzania final report, 2000).
The Arusha Declaration of 1967 envisaged the elimination of the economic ills by
way of a programme based on central planning and self-reliance. The new measures
did not, however, result in greater prosperity. On the contrary; after more than a
decade of severe economic decline – from the late 1970s onwards – the country was
brought to a condition of economic collapse. Consequently, in order to preserve a
constant flow of aid from international donors, the government adopted a more
pragmatic approach to economic planning, starting from the mid-1980s.
(Manufacturing sector in Tanzania final report, 2000)
But into the 1990s the aims of the Arusha Declaration still had not been fully
achieved, just as the economy was continuously in a poor state. Tanzania performed
significantly worse than its northern neighbour, not only in terms of production and
trade but also when it came to social factors such as education and public health. The
new administration, headed by President Mkapa, acknowledged that improvement
within these areas would have to be based on sustainable economic growth, which in
turn should be achieved on the basis of a full-blown market economy. Hence, Mkapa
implemented a tight monetary and fiscal policy, which soon brought inflation under
control. (Manufacturing sector in Tanzania final report, 2000).
2.4.8 The Manufacturing Sector and the National Economy
Tanzania’s manufacturing sector has long suffered serious constraints. In the 1970s
and 1980s they predominantly consisted of external shocks such as high oil prices
and interest rates. In recent years focus has been more on infrastructure difficulties as
well as a disability to keep track with a changing global order. (East African
Industrial Development Strategy, Interim Report, 2000)
36
The problems in infrastructure are illustrated by the repeated water-supply crises in
the capital area, which generates as much as 70-80 percent of total industrial output
in the country. The lack of stable water supplies is first of all affecting the breweries
and distillers in Dar es Salaam. Moreover, irregular power supplies from the
Tanzania Electricity Supply Company (Tanesco) are continuously causing troubles
for the local manufacturers. (East African Industrial Development Strategy, Interim
Report, 2000)
With regard to the problems of adjusting the manufacturing sector to the structures of
globalization, this situation reflects especially two negative conditions: 1) inability to
compete in world markets; 2) inability to promote the Tanzanian industry and attract
foreign investors. Tanzania’s share of international industrial markets is almost
nonexistent, as documented by a foreign exchange earning on manufactures of only
US$ 72 million in 1998. If not counting the foreign participation in the three largest
manufacturing companies in the country foreign direct investments to Tanzania’s
manufacturing industry is also very limited, especially compared to other transition
economies. (East African Industrial Development Strategy, Interim Report, 2000)
The problems of inadequate infrastructure and adjusting to globalization – which
could be said to constitute an internal and external dimension respectively – are
intimately related. Hence, the fact that the cost of electricity currently exceeds that of
most countries in Sub-Saharan Africa by as much as 30-50 percent is generally
presented as the main barrier to potential foreign investors to Tanzania. (East African
Industrial Development Strategy, Interim Report, 2000)
The following section of the report is looking into the current condition of the
manufacturing sector in the context of the national economy. The manufacturing
sector is examined on the basis of key economic indicators such as GDP, investment
allocation, employment, and foreign trade. (East African Industrial Development
Strategy, Interim Report, 2000)
37
2.4.9 FDI Manufacturing Sector and Performance in Tanzania
FDI is still in its infancy in Tanzania. It is still a relative new Concept in this country
which had a socialist orientation until in recent past years. Efforts in the past have
been made by the Tanzanian government to attract more investments from abroad.
The early intention of the government was shown in 1963. Foreign Investment Act
was passed in order to attract FDI in the new independent Tanganyika, then name of
mainland Tanzania before the 1964 union with the Island of Zanzibar (Green, 1982).
Such efforts were somewhat unsuccessful since the government opted for socialist
path of economic development in 1967 following the Arusha Declaration (Ngowi,
2002).
The Arusha Declaration pronounced a socialist policy that was to be followed by the
country. The ministerial order under the industrial (Acquisition) Act Number 5 of
1967 required all MNEs operating in the country as well as big private businesses
owned by Tanzanians in Mainland Tanzania to make the government of Tanzania
majority shareholder of such companies. The majority of the MNEs and big local
companies operating in Tanzania were nationalized. The public corporation Act 17
of 1969 was created to put all nationalized companies under the government control
and management (Ngowi, 2002). The revival of the foreign direct investment
attraction came in 1985 when among other things; Tanzania found that it could not
cope with the ailing and ill-managed public enterprises and companies. Deliberate
economic liberalization policies were initiated and implemented. Reforms in the
financial institutions, public sector, civil service and other areas were made and are
still under way to fine-tune the attraction of FDIs in the country. The National
Investment Act of 1997 was passed in order to promote local and foreign investments
in the country (Ngowi, 2002).
According to The World Economic Forum’s Africa Competitiveness Report 2000-
2001, published in conjunction with the Harvard Institute for International
Development has top-ranked Tanzania, in a survey of African nations’ efforts to
improve economic and investment conditions, out of twenty-four countries on its
index for the correction of initial economic conditions in recent years. The report
38
also ranked Tanzania number two after Nigeria in the African continent for optimism
for future growth. It is however important to note that despite the progress made in
improving the initial conditions, investment effort in Tanzania is still too low and a
lot of improvements are still needed to make investment work for its development
(Investment policy in Tanzania, 1997).
In terms of importance, the manufacturing sector, though not strong as it should be,
continues to play a respectable role in the economy, contributing to 18.9% of export
earnings and 8.6% to GDP - but this is still short of the planned target of 15% by
2020. In the country’s Development Vision-2025, it is projected that the contribution
of the industrial sector to the economy will reach 25% like the semi-industrialized
countries of South East Asia. Tanzania’s most important industries include agro-food
processing, beverages, oil refining, and cement. Other industries include the
production of textiles, apparel, tobacco products, glass, paints, plastics, chemicals
and pharmaceuticals, and the processing of metals and wood products. The sector
provides employment for an estimated workforce of over 100,000 people. Growth
rate of the sector decelerated from 9.9 percent in 2008 to 8.0 percent in 2009. This
trend was due to the effects of the global economic meltdown. (UNESCO Tanzania,
manufacturing struggling to compete, 2011)
2.4.10 Major Production and Industrial Units
2.4.10.1 Food, Beverages and Tobacco
The food manufacturing in Tanzania include manufacturing of dairy products,
canning and preserving of fruits and vegetables, canning fish and similar foods,
manufacture of animal and vegetable oils, grain milling baking, sugar and
confectionery as well as prepared animal feeds. The beverages include the distilling
and blending of spirits; manufacture of wines, cider and beer; production of soft
drinks. (UNESCO Tanzania, manufacturing struggling to compete, 2011).
The goods whose production skyrocketed include Konyagi, which increased by
151.9 %, from 4,049,000 litres in 2008, up to 10,201,000 litres in 2009. Production
of pyrethrum agro- hemicals also increased from 73 tonnes in 2008, up to 266
39
tonnes, equivalent to 264.4 % increase. (UNESCO Tanzania, manufacturing
struggling to compete, 2011)
Production of wheat flour increased from 287,925 tonnes in 2008 to 368,885 tonnes
in 2009, representing 28.1 % increase. Production of Chibuku brew also increased
sharply from 10,235 litres in 2008, up to 16,141 tonnes in 2009, equivalent to 57.7 %
increase. (UNESCO Tanzania, manufacturing struggling to compete, 2011)
Likewise, production of iron sheets ballooned to 50,664 tonnes in 2009, from 31,743
tonnes in 2008, equivalent to 59.6 % increase. Production of batteries also increased
to 78 million batteries in 2009, from 53 million batteries in 2008, representing 47.2
% increase. (UNESCO Tanzania, manufacturing struggling to compete, 2011)
Moreover, production of cement increased from 1,756 tonnes in 2008 up to 1,941
tonnes in 2009. This was caused by high demand of the commodity as consumption
of cement skyrocketed from 1,940,845 tonnes in 2008 to 2,399,458 tonnes in 2009,
equivalent to 58.5% increase. (UNESCO Tanzania, manufacturing struggling to
compete, 2011)
However production of aluminum declined from 105 tonnes in 2008 to 58 tonnes in
2009, registering a 44.8 % decrease. Production of garments also declined from
7,783,000 square metres in 2008 to 7,913,000 square metres in 2009, a 34.9 %
decrease. (UNESCO Tanzania, manufacturing struggling to compete, 2011)
The private sector in its part should take all necessary initiatives to respond and
manage challenges of globalization. Firms are challenged to pursue firm strategies
which are geared towards building the necessary capabilities to enable them compete
in the world market.
2.5 Conceptual frame work of the Study
Conceptual or theoretical framework refers to conceptual model of how one theory
or makes logical sense of the relationships among the several factors that have been
identified as important to the problem. (Uma Sekaran 2003)
40
The basic framework of this study is built around the conceptual model below (See
Figure 1).
Dar es Salaam is largest and richest city in Tanzania, a regionally important
economic centre. It consists of three local government areas or administrative
districts: northern Kinondoni, central Ilala, and southern Temeke. The Dar es Salaam
Region had a population of 4,364,541 as of the official 2012 census. Therefore Dar
es salaam is largest consisted over 70% of FDI in Tanzania and over 80% of
manufacturing industries are based on Dar es salaam. Therefore FDI represents
independent variables and manufacturing industry represents dependent variable
The variables that influence the dependent variables (Manufacturing industry) is FDI
with its potential impacts to the manufacturing industry such as capital, technology,
skills and management, market access, environment, competition, employment
generation and revenue. FDI is an independent variable provides socio economic
environment to the dependent variable. Manufacturing industry are dependent
variables that means they cannot get the desired outputs (Profits/revenue, capital,
skills and management technology etc,) without socio-economic support from FDI.
41
Figure 2.1: Conceptual Framework
CONCEPTUAL FRAMEWORK
.
Source: Researcher Data
2.5.1 Variables Concepts
Technology
Foreign companies can bring modern technologies (many not available without FDI)
and raise the efficiency with which technologies are used. They adapt technologies to
local conditions, drawing on their experiences in other developing countries. They
may, in some cases, set up local R&D facilities. They can upgrade technologies as
innovations emerge and consumption patterns change. They can stimulate technical
efficiency in local firms, both suppliers and competitors by providing assistance,
acting as role models and intensifying competition.
Revenue
Foreign companies may also contribute to fiscal revenue through their operation. For
the foreign companies involved in the acquisition of the former state owned
companies through the privatization process they can, for example, generate a lot of
Foreign Direct
Investment
(FDI)
Manufacturi
ng Industry
Revenue
Employment
Skills and
Management
Technology
Dependent
variables Independent
variables
42
revenue through the sale of the privatized companies. However, on the other hand the
revenue impact is still ambiguous as the governments lose a lot of revenue through
fiscal incentives extended to the foreign companies.
Employment Generation
Ability to produce employment sources in the cause of productivity or production of
goods and services. Foreign companies can become important employers through the
generation of new jobs in their new projects (i.e., Greenfield investment). However,
one expected outcome of privatisation is the rationalisation of work force of the
previous parastatals. Therefore, the net employment effect of foreign investment to a
particular economy has to be analysed with some care.
Skill & Management
Foreign companies possess advanced skills and can transfer these to host countries
by bringing in experts and by setting up training facilities (the need for training in
often not recognize by local firms). They also possess new, presumably among the
best management techniques, whose transfer to host countries offers enormous
competitive benefits. Where affiliates are integrated into foreign companies’
networks, they can develop capabilities to service the regional or global
system in specific tasks or products.
43
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter discusses to some length, the methodology used to study the assessment
of the impact of FDI manufacturing in Tanzania industry in socio-economic activities
for the case of Tanzania. The nature of the research was mainly a descriptive study
and the main instruments for data collection were interviews and questionnaires.
3.2 Research Setting
The research setting refers to the place where the data are collected. In this study,
data were collected from TIC; EPZ TCCIA, TCC and other manufacturing company
with FDI related which are operating in Dar es Salaam Tanzania.
3.3 Research Design
Polit and Hungler (1999:155) describe the research design as a blueprint, or outline,
for conducting the study in such a way that maximum control will be exercised over
factors that could interfere with the validity of the research results. The research
design is the researcher’s overall plan for obtaining answers to the research questions
guiding the study. Burns and Grove (2001:223) state that designing a study helps
researchers to plan and implement the study in a way that would help them obtain the
intended results, thus increasing the chances of obtaining information that could be
associated with the real situation.
The study on assessment of the impact of FDI manufacturing industry for the case of
Tanzania was descriptive survey design. Descriptive survey design is not only
concern with the characteristics of individuals but with the characteristics of the
whole sample thereof. It provides information useful to the solutions of problems
(www.ijtbm.com)
44
3.3 Population and Sample Size
Population refers to the entire group of people, events, or things of interest that the
researcher wishes to investigate. (Joseph, Robert and David, 2000). Based on the
number of projects that have been approved by TIC between 1990 and 2000, the
manufacturing sector seems to be attracting the highest number of foreign investors.
According to TIC investment report of 2000 Tanzania had 269 FDI manufacturing
projects, tourism had 114 projects, and agriculture had 91projects and the natural
resources sectors with 77 projects over the same period.
3.4 Sampling Techniques
Non probability (purposeful sampling) sampling was used. This method used in
picking the sample which was convenience to the researcher. A convenience sample
is merely an available sample that appears able to offer answers of interest to the
researcher’s study (Baker, 1994). This is a sampling technique that is preferable for
its economic value. It enables a researcher to save time. With this technique a
number of people who happened to be around were administered with
questionnaires, and in this case it is the aforementioned institutions, including TIC,
TCC, TCCIA, EPZA among others.
Basing on the population study our sampling methods was purposive and stratified
sampling. Stratified sampling requires the separation of the defined target population
into different groups, called strata, and the selected samples from each stratum.
Purposive sampling, participants are selected according to an experienced
individual`s belief that they will meet the requirements of the study (Joseph. F,
Robert P and David J, 2000)
3.4.1 Sample Size
The sample size of 35 companies was drawn from a population of 86 companies
representing 50% percent of the population. The sampled companies involved those
with investments worth USD 1.0 million and above, which provides 90.0 percent of
total value of FPI. The selected companies covered all sectors of the economy and
were located in Tanzania.
45
Table 3.1: Justification Sample size and Selection Method
Pop Sample Sample frame Sample Size Element
86 Manufacturing
Food and beverages 7 6
Machinery and equipment 7 6
Agro-industry 5 5
Other manufacturing 12 10
Chemicals and petroleum 4 3
86 Total 35 30
Source: Tanzania Investment Report: 2007
3.4 Data Collection Methods
The main data collection method was questionnaire. Questionnaires were
administered by the researcher and respondents completed the questionnaires and
returned back to researcher. This method was supplemented by Interviews to the
respondents, observation and reporting.
3.4.1 Secondary Data
Secondary data analysis can be literally defined as “second-hand” analysis. It is the
analysis of data or information that was either gathered by someone else (e.g.,
researchers, institutions, other NGOs, etc.) or for some other purpose than the one
currently being considered, or often a combination of the two (Cnossen 1997).
Secondary data for this study were collected from Tanzania Investment Centre (TIC),
Tanzania Chamber of Commerce and Industries Association (TCCIA), Export
Processing Zone Authority (EPZA), and any other relevant reports. Secondary were
used in order to provide a baseline comparison of primary data collection results.
3.4.2 Primary Data Collection Methods
Primary data were collected from the sample population through survey employing
the questionnaire and interview.
3.5 Questionnaire
Is a pre-formulated written set of questions to which respondents record their
answers, usually within rather closely defined alternatives (Kothari, 2001).
46
Questionnaires allowed individuals to express their views concerning FDI in
Tanzania (see appendix A). The questionnaires were distributed to respondents
aimed at getting information regarding the impact of Foreign Direct in
Manufacturing industry particularly in Dar es Salaam, Tanzania. Questionnaires were
administered to the respondents and were filled by the respondents themselves. The
questionnaires were both close and open ended. Questionnaires are advantageous in
terms of economy and anonymity. Thirty five respondents were administered with
the questionnaires.
3.6 Interviews
Face to face interviews was administered to TIC, EPZ, TCCIA, and TCCIA and
TCC. Interview was conducted to collect qualitative information such as opinions
and views of the study. Interviews were guided by interview guide questions (see
appendix A). Where by the officials of the aforementioned institutions were
interviewed during data collection; a significant number of them within the selected
population, were able to come up with the answers on interview questions. The
advantages of using interview was quick method of gathering information, because it
has high return rate and the researcher would know whether the respondents
understands the questions and the method was not restricted to educated class alone.
An interview is advantageous It helps to clarify ambiguous responses and fill in
missing gaps. An interview guide was used to solicit answers from the respondents.
3.7 Data Analysis
Data analysis is the activities of accumulating evidence in order to obtain answers to
the research questions. Merrian (1998:178) note that data analysis is the process of
making sense out of data.
On my data analysis, the research findings have been presented/analyzed by using
statistical procedure/models such as tables and percentages, which were used to
summarize the study results in order to draw conclusion the Impact of Foreign
Direct Investment (FDI) in Tanzania and particularly Dar es Salaam. The study
applied both qualitative and quantitative analysis techniques to arrive on the desired
47
results. The researcher applied Microsoft Excel in analyzing both primary and
secondary data, to attain a quick output. The analysis process was guided by research
specific objectives and so from research questions.
The data collected were examined, categorized, tabulated, computed and concretized
into evidence required to answer research questions. The research questions focused
on the impact of technology, revenues, employment generation, skills and
management in manufacturing industry. Factors or criteria were given to each
research question.
3.9 Reliability and Validity of Data
3.9.1 Reliability
Reliability refers to the degree of consistency or accuracy with which an instrument
measures the attribute it is designed to measure (Polit&Hungler 1997:296;
Uys&Basson 1991:75). If a study and its results are reliable, it means that the same
results would be obtained if the study were to be replicated by other researchers
using the same method. If researchers today replicate this study they will produce the
same results.
3.9.2 Validity
Validity refers to the degree to which an instrument measures what it is supposed to
be measuring” (Uys&Basson 1991:80). Validity can be sub-categorized as external
and internal validity. Validity of the study was based on the way data have been
processed and analyzed basing of the research questions.
48
CHAPTER FOUR
PRESENTATION OF FIDINGS, ANALYSIS AND DISCUSSION
4.1 Introduction
This chapter presents the research findings and interpretations for the analysis under
study, that is: - assessment of impact of FDI in manufacturing industry for the case of
Dar es salaam, Tanzania.
The following section(s) underlines the Presentation of the collected data, analysis
and finally the discussion of the findings with alignment to the specific questions of
my research and subsequently the research specific objectives.
4.2 Presentation of the Findings, Analysis and Discussion
The overall analysis of the Primary and Secondary sources of data provides a very
close alignment in meeting the core aspects of the research objectives, and
particularly answering the large portion of my specific objectives in a significant
proportion. A very critical push of FDI to the Tanzanian investment environment and
specifically in Dar es Salaam, had ranged from inflows of Multi-National companies
(MNC), having heavy capitals in various sectors, such as Mining, Power production,
Gas exploration, Technology and Innovation and various others.
From the analysis on the data collected, the observation indicates a significant
improvement in the inflow of FDI in Tanzania environment and particularly along
Dar es Salaam environment, as registered through TIC, TCCIA, EPZA and in the
small and medium industry processing outlets. The increase in FDI inflows had
boosted the economy of Tanzania to the rate of GDP 7.1% annually, with Dar es
Salaam business hub contributing the largest portion. These trends justify the
intended outputs from the specific objectives of my research theme.
Mahiti, (2012) mentions that the priority sectors for investment, as identified by
Tanzania Investment Centre (TIC), are: Tourism, infrastructure development,
49
aviation, agriculture, construction, manufacturing and financial services. Latest
trends show significant inflow of investors in Minerals, Gas exploration and various
Processing Industries.
According to The World Economic Forum’s Africa Competitiveness Report 2000-
2001, published in conjunction with the Harvard Institute for International
Development has top-ranked Tanzania, in a survey of African nations’ efforts to
improve economic and investment conditions, out of twenty-four countries on its
index for the correction of initial economic conditions in recent years. The report
also ranked Tanzania number two after Nigeria in the African continent for optimism
for future growth (Mahiti, 2012).
Mahiti, (2012) describes further that, FDI in East Africa have been increasing over
time. BOT et al (2001:9) point out that monetary value of the FDI inflow into
Tanzania increased sixteen-fold from US$ 47 million in 1990 to US$ 768 million by
2000. There had been a very significant growth in investments.
With core focus on the specific study areas as identified in my research objectives,
the overall trend of the FDI in Tanzania (particularly in Dar es Salaam) according to
Ngowi (2012); indicates a significant positive impact and in the improvement of the
Tanzania investment environment, having a major boost in various development
aspects; growth in technology and innovation across various disciplines, growth in
revenue in manufacturing industry within small and medium industries, growth in
formal and informal employment sectors and significantly skills expansion especially
due to various multi-nationals and multi-skilled support resources availed after the
inception of the FDI paradigm shift. All these equally justify the worthiness of this
study and its contribution to the overall future assessment of the FDI trends in
Tanzania and probably within East Africa Confederation (EAC).
50
Table 4.1 below indicates the results from a set of questionnaires which were
prepared as guidance to Tanzania Investment Center (TIC), Export Processing Zone
(EPZ), Tanzania Chamber of Commerce and Industries Association (TCCIA) and
Tanzania Cigarette Company (TCC). Focus was on the assessment of impact of FDI
in manufacturing industry for the case of Dar es salaam, Tanzania. The interviews
were conducted and the results were compiled and complement with those found
from the questionnaires to create more elaborate and meaningful findings.
Table 4.1: Summary of the Questionnaires Distributed and Collected
Respondents profile Distributed % Collected (%)
Tanzania Investment Centre (TIC) 10 33% 9 30%
Export Processing Zone(EPZ) 8 27% 6 20%
Tanzania Chamber of Commerce and Industries
Association (TCCIA)
7 23% 5 17%
TCC 3 10% 3 10%
Bakhresa 2 7% 2 7%
Total 30 100
%
25 83%
Source: Field Survey 2014
Figure 4.1: Summary of Questionnaires Distributed and Collected
Source : Researcher’s Data
TIC EPZ TCCIA TCC Bakhresa Total
Q-Distributed 33% 27% 23% 10% 7% 100%
Q-Collected 30% 20% 17% 10% 7% 83%
Per
cen
tag
e
51
The overall response rate was 83% as many questionnaires were returned filled. Only
17% of the questionnaires were not returned. The main reason was that; managers
and staff of respective companies were seemed to be very busy attending their
business matters and had no time to fill the questionnaires.
Table 4.2: Demographic Respondents
Frequency Percentage
Sex
Male 21 70%
Female 9 30%
Age
18 to 25 3 10%
26 to 30 5 17%
36 to 40 9 30%
>40 13 43%
Education level
Secondary/High School 0 0%
Colleges/University 26 87%
Masters/PHD 4 13%
Occupation
Self-Employed 0 0%
Middle Manager 12 40%
Senior Manager 18 60%
Source: Field Survey 2014
52
The majority of the respondents were male representing 70% of the total
respondents. Female were 30% of the total respondents.18 to 25 years old were 10%
of the total respondents.26 to 30 years old was 17% of the total respondents. 36 to 40
years old was 30% of the total respondents. Above 40 years old were 43% of the
total respondents. 87% had completed colleges and University education and 13% of
the total respondents had achieved Masters and PhD level of education. 40% of total
respondents were engaged in middle management roles in their enterprises and 60%
of the total respondents were engaged in senior management roles in their
enterprises.
4.3 The Impact of FDI technology in Manufacturing Industry in Tanzania
To get information on the impact of FDI technology in manufacturing industry in
Tanzania, the following criteria were used. Criteria used were; improve and increase
efficiency of manufacturing industries, Technology transfer to the local
manufacturing industries, Improve/increase productivity, Improve quality of
products, Increase competitive advantages of foreign firms in manufacturing
industries.
53
Figure 4.2: What is the Impact of FDI technology in Manufacturing Industry in
Tanzania?
Source: Researcher’s Data
Based on the respondents, majority ranked FDI in manufacturing industry improve
and increase efficiency .40% to 60% of the total respondents agreed and strongly
agreed that FDI in manufacturing industry improves and increases efficiency.27% to
72% of total respondents agreed and strongly agreed that FDI in manufacturing
industry transfers technology to local firms.
33% to 67% of total respondents agreed and strongly agreed that FDI in
manufacturing industry improves/increases productivity. 30% to 70% of the total
respondents agreed and strongly agreed that, FDI in manufacturing industry
improves quality of products and services. 17% to 83% of the total respondents
agreed and strongly agreed that, FDI in manufacturing industry increases competitive
advantage of foreign firms.
60%
40%
27%
73%
33%
67%
30%
70%
17%
83%
SD
D
N
A
SA
Increases competitive advantages of foreign firms.
Improves quality of products and services
Improve/increase productivity
Technology transfer to the local manufacturing industries
Improves and increases efficiency.
54
4.4 The impact of FDI Revenue in Manufacturing Industry in Tanzania
FDIs have contributed to the government revenue in various ways, which include tax
payment, payment of royalty, payment for licenses and fees and payments in the
acquisition process of the for state owned enterprises in the divestiture exercise.
In order to obtain the information on the impact of FDI revenue in manufacturing
industry in Tanzania, the following criteria were used; Income generated from FDIs
improves living standards of the household, Income generated from FDI increases
government revenues, Income generated from FDIs promotes education development
in the household, Income generated from FDIs promotes health services
Figure 4.3: What is the impact of FDI revenue in Manufacturing Industry?
Source: Researcher’s Data
Based on the respondents, majority ranked income generated from FDI
manufacturing industry improves living standards of the household .50% to 50% of
the total respondents agreed and strongly agreed that income generated from FDI
manufacturing industry improves living standards of the household. 13% to 87% of
total respondents agreed and strongly agreed that income generated form FDI
manufacturing industry increases government revenues.
55
3% of the total respondents were neutral on the income generated from FDI
manufacturing industry promotes educational development of the household. 40% to
57% of total respondents agreed and strongly agreed that income generated from FDI
manufacturing industry promotes educational development. 40% to 60% of the total
respondents agreed and strongly agreed that, income generated from FDI in
manufacturing industry health services of the household.
4.5 The impact of FDI Employment Generation in Manufacturing Industry
in Tanzania
To get the information on the impact of FDI revenue in manufacturing industry in
Tanzania. The following criteria were used; employment generated from FDIs
improves living standards, employment generated from FDI improves income level,
employment generated from FDI increases government revenue through tax
(P.A.Y.E), employment generated from FDI reduces dependability of government
employment.
56
Figure 4.4: What is the Impact of FDI Employment Generation in
Manufacturing Industry in Tanzania?
Source: Researcher’s Data
Based on the respondents, majority ranked employment generated from FDI
manufacturing industry improves living standards of the household .40% to 60% of
the total respondents agreed and strongly agreed that employment generated from
FDI manufacturing industry improves living standards of the household. 27% to 73%
of total respondents agreed and strongly agreed that employment generated form FDI
manufacturing industry improves income levels of household. 13% to 87% of the
total respondents agreed and strongly agreed that employment generated from form
FDI manufacturing industry increases government revenue through tax (PAYE).
33% to 67% of total respondents agreed and strongly agreed that employment
generated from FDI manufacturing industry reduces the dependability of the
household on the government employments.
57
4.6 The Impact of FDI Skills and Management in Manufacturing Industry in
Tanzania
To get the information on the impact of FDI skills and management in manufacturing
industry in Tanzania. The following criteria were used; improve productivity, staff
and management performance, business continuity, staff and management
competencies, profitability of the company, competitive advantage of the firm,
quality of the products or services, achievement and exceeding of company`s targets
and staff and management loyalty.
Figure 4.5: What is the Impact of FDI Skills and Management in
Manufacturing Industry in Tanzania?
Source: Researcher’s Data
58
Based on the respondents, majority ranked employment generated from FDI
manufacturing industry improves living standards of the household .40% to 60% of
the total respondents agreed and strongly agreed that skills and management from
FDI manufacturing industry improves productivity. 50% to 50% of total respondents
agreed and strongly agreed that skills and management from FDI manufacturing
industry improves staff and management performance. 20% to 80% of the total
respondents agreed and strongly agreed that skills and management from FDI
manufacturing industry promotes business continuity of the company.
10% to 90% of total respondents agreed and strongly agreed that skills and
management from FDI manufacturing industry promotes staff and management
competencies. 10% of the total respondents were neutral that, skills and management
from FDI manufacturing industry increases profitability of the company. 40% to
50% of the total respondents agreed and strongly agreed that skills and management
from FDI manufacturing industry increases profitability of the company.40% to 60%
of the total respondents agreed and strongly agreed that skills and management from
FDI manufacturing industry increases competitive advantage of the firm.
20% to 80% of the total respondents agreed and strongly agreed that skills and
management from FDI manufacturing industry improves quality of products or
services. 47% to 53% of the total respondents agreed and strongly agreed that skills
and management from FDI manufacturing industry helps the company to
achieve/exceed its targets.
13% to 13% of the total respondents disagreed and strongly disagreed that skills and
management from FDI manufacturing industry loyalty among the staff and
management. 20% to 53% of the total respondents agreed and strongly agreed that
skills and management from FDI manufacturing industry promotes loyalty among
the staff and management team.
59
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
The main objective of the study was to assess the impact of FDI in manufacturing
industry in Tanzania. Therefore this chapter presents summary of the findings,
conclusion and recommendations.
5.2 Summary of the Findings
After analyzing the data in chapter four the researcher found that majority of the
respondents agreed and strongly agreed that, have positive impact on socio-economic
development of individual and the government. For example, 17% to 83% of the
total respondents agreed and strongly agreed that FDI technology in manufacturing
industry have positive in Tanzania.
13% to 87% of total respondents agreed and strongly agreed that revenue generated
from FDI manufacturing industry have positive impact in Tanzania. 13% to 87% of
the total respondents agreed and strongly agreed that employment generated from
FDI have positive impact in Tanzania and 10% to 90% of the total respondents
agreed and strongly agreed that skills and management from FDI have positive
impact in Tanzania.
For a host economy like that of Tanzania to benefit from this potential FDI role of
increasing government revenues, a number of conditions have to be fulfilled. Among
others, to benefit from privatization proceedings, royalties and dividends it takes
good valuation, negotiation and contractual capabilities as well as a sense of broader
national interest. For FDI-based taxes to contribute meaningfully in social-economic
transformation and by extension to poverty reduction, adequate collection of taxes is
needed.
60
This observation empirically aligns well with observations from other researchers on
the same especially by linking to Mahiti, (2012) who explained well that, FDI in East
Africa and particularty in Tanzania, have been increasing over time, with a very
significant impact in social-economical development and improving the general
economy of the land. BOT et al (2001:9) point out that monetary value of the FDI
inflow into Tanzania increased sixteen-fold from US$ 47 million in 1990 to US$ 768
million by 2000 and to the recent days a significant boot had been observed in the
sustainable growth in GDP by 7.1%. with a very significant positive growth in socio-
economical investments.
5.3 Conclusion
The main objective of the study was to assess the impact of FDI in manufacturing
industry in Tanzania. After analyzing the data in chapter four the researcher found
that, there various positive impacts on FDI manufacturing industry in Tanzania, the
impacts focused on technology, revenue, employment generation, skills and
management.
17% to 83% of total respondents agreed and strongly agreed that, FDI in
manufacturing have positive impact on technology in-terms of quality of the products
and services, productivity, efficiency, competitive advantages and technological
transfers.
13% to 87% of total respondents agreed and strongly agreed that, revenue generated
from FDI manufacturing industry has positive impacts on health services, living
standards of the household and government taxes collection.
13% to 87% of total respondents agreed and strongly agreed that, FDI in
manufacturing industry has positive impacts on employment generations in-terms of
reduction of dependence of government employment, improvement of income levels
and living standards, and increase of government revenues.
61
10% to 90% of total respondents agreed & strongly agreed that, FDI in
manufacturing industry has positive impacts on skills and management in-terms of
staff performance, productivity, staff and managers` competencies, loyalty and
business continuity.
However 10% of total respondents neither agreed and strongly agreed nor disagreed
and strongly disagreed that, FDI in manufacturing industry has positive impacts on
skills and management.
5.4 Recommendations
With the sight of the findings and conclusions drawn above, the assessment
identified the direct impact of FDI in manufacturing industry in Tanzania as targeted
through the research objectives and so research questions especially in technology,
revenue, employment generation and skills and management. Thus having the study
achieved a significant part of the objectives, following recommendations are
inevitable in order to enhance positive impacts on FDI manufacturing industry in
Tanzania
(i) For technological advancement in manufacturing industry, FDI has
substantial impact on technological revolution in manufacturing industry in
Tanzania. Therefore the government must create favorable environment to
attract more FDI inflow in order to benefit from FDI technology in
manufacturing industry. FDI technology is the catalyst for efficiency,
productivity and economic growth.
(ii) Government should create favorable environment for FDI in order boost
employment level. The higher the FDI inflow the higher the employment rate.
FDI in manufacturing industry is key drive of employment in Tanzania. FDI
manufacturing contributes more than 33.5% employment in Tanzania.
(iii) Government of Tanzania should come up with the National Strategies to
boost local investments in order to minimize the risks of profit transfers of
FDIs to their home countries
(iv) For skills and Management competencies in manufacturing industry, FDI
inflow in manufacturing industry is vital in order to improve technical skills
62
and management skills. Most of the manufacturing industries which have
high productivity, performance, quality products and competitive advantage
are the one which have foreign management team and technical expertise. For
example TCC. The better the technical staff skills the better the performance.
5.5 Policy Implication
(i) This study intends to make a coherent contribution to policy makers of the
Tanzania government on all aspect of FDI specifically in the area of
manufacturing industry.
(ii) Establishment of protective policies to ensure that Locals are more
empowered to combat the pressures of high inflows of FDI in Tanzania.
63
REFERENCES
Agarwal S and Sridhar N. Ramaswami (1992) Article. Journal of International
Business Studies.
Baker, TL (1994), DoingSocialresearch (2nd Edn.), New York:
McGraw-Hill Inc Bank of Tanzania, Annual Report 1999, Dar es
Salaam
Bigsten & Danielsson, (1999): Is Tanzania an Emerging Economy, Dar es Salaam
CTI (2011) challenges of unreliable electric power supply to manufactures in
Tanzania, Golden Tulip
CTI (2000), the manufacturing sector in Tanzania, Economics department University
of Dar es salaam
Delhi J. Robert, P and David J (2000) Market Research; McGraw Hill; Higher
education. Dynamic Comparative Advantage,” Hitotsubashi Journal of
Economics 26 (2): 135-14
Dunning, J. and Vernon R. (1977), Motivations for Foreign Direct Investments,
related Theories, and determinants of foreign productions.
Force, P. and Richer, S. (1973) Survey Research Methods, Belmont, California:
Wadsworth Publishing Company.
INCTAD, (2012); Global Flows Of Foreign Direct Investment Exceeding Pre-Crisis
Levels In 2011, Despite Turmoil In The Global Economy
Jonny K (2006). Global Marketing: Foreign entry and Local entry; McGraw hill:
USA
64
Joseph F, Robert P, David J. (2000), Marketing research Irwin/McGraw-Hill.
Kothari, R. (2008) Research Methodology; Methods and Techniques; Wiley
Eastern; New Delhi.
Mahiti, F. (2012), Determinants of Foreign Direct Investment in East Africa
Countries of Tanzania and Kenya: The case study of Tanzania and
Kenya
Mnali, J. (2012) the contribution of FDI to local economy in Tanzania
Achievements Challenges and prospects; Tanzania global learning
agency
Moshy, N. & Assey, C. (2004); Intra-Africa FDI: Trends, Problems and Prospects:
The Experience of Ta n z a n i a
Ngowi, P. (2011), Foreign Direct Investments (FDIs) Determinates;
Ngowi, P. (2012), Foreign Direct Investments (FDIs) Roles in Economic
Transformation for Poverty Reduction: What Does it Take in a
Tanzanian-type Economy?
OECD (2013), Foreign Direct Investment in flows
Page, S. and Willem, te V. (2004); Foreign Direct Investment by African Countries
Peter J. Buckley and Mark, C. (1985) The Economic Theory of the Multinational
Enterprise: Selected Papers, London: Macmillan.
Polit, D and Hungler, B. (1999) Nursing Research: Principles and Methods (6th
edn). Philadelphia: J.B. Lippincott
65
Roch, M. (1973). Cross-Country Analysis of the Determinants of United States
Direct Foreign Investment in Manufacturing in Less Developed
Countries. Ph.D. Dissertation, University of Pittsburgh (unpublished.).
Sharma, V. and Erramilli, M. (2004), Resource Based Explation of Entry Mode
Choice. Journal of Marketing Theory and Practice
Smantha, F. (2010), Foreign Direct Investment Concepts: Implications for
investment negotiations Tanzania Ministry of Industry and Trade &
UNIDO, 2000: Review of Industrial and Trade Performance, Vienna
Kojima, Kiyoshi and Terutomo Ozawa (1985), “Toward a Theory of
Industrial Restructuring and
Uma, S. (2003). Research method for business: A skill building approach, 4th
edition, John Wiley & Sons
UNCTA (2013), The world investment report, Global value chain: Investment and
Trade for development
UNESCO (2011), Tanzania, manufacturing struggling to compete, National
commission of the united of republic of Tanzania.
Uys, H. and Basson, A. (1991), Research methodology in nursing. Pretoria: Kagiso
APPENDICES
66
Appendix 1: Research Questionnaires and Interview Questions
ASSESSMENT OF IMPACT OF FDI IN MANUFACTURING INDUSTRY –
DAR ES SALAAM, TANZANIA
QUESTIONNAIRE
Dear Respondent.
This instrument is designed to gather data for MBA research/study which is looking
into assessment FDI impact on manufacturing industry, the case of Dar es
Salaam Tanzania.
Because you are the one who can give us correct information on this study, we are
requesting you to provide the utmost co-operation. Please note that any information
provided will be treated with utmost level of confidentiality.
We thank you for sparing your valuable time to respond to the questions in this
questionnaire. We assure you of the observance of your privacy in the responses and
that the answers will be used for academic purposes only. We will greatly appreciate
if this questionnaire is completed and submitted for collection by us within two (2)
days.
We thank you for your kind support.
Cordially,
Anna Simon
[Mobile: 0784 392 248; Email: [email protected]]
SECTION A (BACKGROUND INFORMATION)
67
1. Name of the Company/Organization……………………………………….…
2. Your title/position in the Company/ Organization…………………………......
Please put (√) in the box for the choice of your agreement for each of the following:
3. Age
(i) 20-25 ( )
(ii) 26-30 ( )
(iii) 31-35 ( )
(iv) 36-40 ( )
(v) 40 and above ( )
4. Gender
(i) Male ( )
(ii) Female ( )
5. Marital status
(i) Single ( )
(ii) Married ( )
(iii) married ( )
(iv) Divorced ( )
(v) Widowed ( )
(vi) Separated ( )
6. Academic qualifications
(i) Diploma ( )
(ii) Graduate ( )
(iii) Masters ( )
7. Number of years in the office/position
(i) 0-5 ( )
68
(ii) 6-10 ( )
(iii) 11-15 ( )
(iv) 16- 20 ( )
(v) 21 and above ( )
SECTION B Technology
Section B (1): What is the impact of FDI technology in manufacturing industry
in Tanzania?
8. Please put a tick (√) in each box for the choice of your agreement for each of
the statements below (that is SD= Strong Disagree, D= Disagree, N= Neutral,
A= Agree, SA, Strongly Agree).
S/N Item SD D N A SA
i. Improves and Increases efficiency of manufacturing industries
ii. Transfer of technology to the local manufacturing industries
iii. Improves/increases productivity
iv. Improves quality of products
v. Increases competitive advantages of Foreign firms in
manufacturing industries.
SECTION B (2) Revenue
69
What is the impact of FDI revenue in manufacturing industry in
Tanzania?
9. Please put a tick (√) in each box for the choice of your agreement for each of
the statements below (that is; SD= Strongly Disagree, D= Disagree,
N=Neutral, A= Agree, SA= Strong Agree).
S/N Item SD D N A SA
i Income generated from FDIs improves living
standards of the household.
ii Income generated from FDI provided a new venture
of income stream to the government
iii Income generated from FDIs promotes education
development in the household
Iv Income generated from FDIs promotes health
services
SECTION B (3) Employment generation
What is the impact of FDI employment generation in manufacturing
industry in Tanzania?
10. Please put a tick (√) in each box for the choice of your agreement for each of
the statements below (that is; SD= Strongly Disagree, D= Disagree,
N=Neutral, A= Agree, SA= Strong Agree).
S/N Item SD D N A SA
i Improves living standards of the household
ii Improves income level of the household
iii Increases government revenue through PAYE
iv Reduces the dependability of household on
government employments
SECTION B (4) Skills and Management
70
What is the impact of FDI skills and management in manufacturing
industry in Tanzania?
10. Please put a tick (√) in each box for the choice of your agreement for each of
the statements below (that is; SD= Strongly Disagree, D= Disagree,
N=Neutral, A= Agree, SA= Strong Agree).
S/N Item SD D N A SA
i Improves productivity
ii Improves staff and management performance
iii Promotes business continuity
iv Promotes staff and management competencies
v Increases profitability of the company
vi Increase competitive advantage of the firm
vii Improves quality of the products/services
viii Helps the company to achieve/exceed its targets
xi Promotes loyalty among the staff and management
Appendix 2: List of Visited Organizations/Entities
ORGANIZATION NAME NATURE OF OPERATIONS
Tanzania Investment Centre (TIC) Investments Promotions, support and regulatory centre
71
Export Processing Zone(EPZ) Industrial zone, an authority for support and guidance on
export processing industry and Promotions.
Tanzania Chamber of Commerce
and Industries Association (TCCIA)
The Chamber of Commerce and Industry Promotion,
regulatory and monitoring
TCC Processing Industry – Cigarettes products
Bakhresa Processing Industry – Multi – products and exports
operations
SIDO Small Industries and Micro Manufacturing sectors
Promotions and empowerment.
