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