COTTON, TEXTILE AND APPAREL SECTOR INVESTMENT

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COTTON, TEXTILE AND APPAREL SECTORINVESTMENT PROFILETANZANIA

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COTTON, TEXTILE AND APPAREL SECTORINVESTMENT PROFILETANZANIA2016

FOREWORDExperience Tanzania’s development pace by investing in Cotton, Textile and Apparel sector.Agricultural sector is and will continue for some time to remain the backbone of the economy for Tanzania. It accountsfor 28.7 per cent of the GDP, provides about 95 percent of food requirement; employs 74 per cent of the populationand provides raw materials for industries. The sector has potential to lift many of the poor people out of poverty andcontribute to achieving our national development goal of graduating into middle income economy status by 2025.Cotton, Textile and Apparel sector profile is meant to harness the potential for investment, trade and socio-economicdevelopment in the respective sectors. The sector profile intends to review the investment outlook of Cotton, Textile andApparel sector and unveil investment opportunities and economic potentials that are offered by the sector.Tanzania is the fourth largest global producer of organic cotton after Turkey, Syria and India and cotton is the secondlargest export crop in the country after coffee. This sector if promoted effectively has a very high potential to immenselycontribute to the economy in terms of foreign earnings, jobs creation, incomes and poverty reduction. Promotion of thissector will also encourage development of industries as Tanzania is moving towards industrialization.Tanzania has access to various markets under different preferential trade agreements like African Growth OpportunityAct (AGOA) and the European Union’s Everything But Arms (EBA). Through Special Preferential Tariff Agreement withChina, over 4000 goods originating from Tanzania can be exported to China free of tariff.This sector profile will provide all the necessary information required by investors interested to invest in the countryespecially in the cotton sector.We anticipate the information provided in this profile will encourage and strengthen high investment for cotton, textileand apparel sector.We acknowledge the support of International Trade Centre (ITC), Strengthening India’s Trade with Africa (SITA) and theGovernment of United Kingdom through UKAID for their support in developing this profile. Their initiatives will benefit TICtremendously in the promotion of the sector and its value chain effectively.Clifford Tandari,Acting Executive Director,Tanzania Investment CentreACKNOWLEDGEMENTSThis profile has been produced under the framework of Supporting Indian Trade andInvestment for Africa (SITA) project, funded by the Department for International Development,Government of the United Kingdom and implemented by the International Trade Centre.SITA is a South-South Trade and Investment project aimed at improving competitivenessof select value chains; and increasing investment in five Eastern African countries throughpartnerships with institutions and businesses from India.CTA SECTOR INVESTMENT PROFILE: TANZANIASpecial contributions to writing this report have been provided by:4Textile and Garment Manufacturers Association of TanzaniaQuality Assurance:International Trade Centre (ITC), Trade Facilitation and Policy for Business Section (TFPB)TCA Ranganathan, External consultant, Rajesh Aggarwal, Chief (TFPB), Andrew Huelin,Associate Programme Advisor (TFPB)Author: Marco MtungaDesign: Iva Stastny Brosig, Design plusEditor:Vanessa Finaughty and Guillaume LamotheThe views expressed in this report are those of the authors and do not represent the officialposition of the International Trade Centre, Tanzania Investment Centre and the Governmentof the United Kingdom. The images used in this profile may not always reflect accurately thecountry context. International Trade Centre 2016

Table of ContentsTANZANIA: AN OVERVIEW7TAXATION8BANKING SERVICES9INVESTMENT PROMOTIONAGENCIES AND SUPPORTINGINSTITUTIONS25TANZANIA INVESTMENT CENTRE (TIC) 2511MAJOR REGIONAL INTEGRATION ANDTRADE POTENTIAL11EXTERNAL SECTOR DEVELOPMENTS11FOREIGN DIRECT INVESTMENT (FDI)12LABOUR CONDITIONS AND WAGE RATES 13EXPORT PROCESSING ZONESAUTHORITY (EPZA)26INDUSTRIAL UTILITIES26SMALL INDUSTRIES DEVELOPMENTORGANIZATION (SIDO)27VOCATIONAL EDUCATION ANDTRAINING AUTHORITY (VETA)27TAXATION POLICIES13ACCESS TO CONVENTIONAL ANDORGANIC COTTONCOLLEGE OF ENGINEERING ANDTECHNOLOGY (COET)2715THE TEXTILE DEVELOPMENT UNIT27THE NATIONAL INVESTMENTSTEERING COMMITTEE (NISC)27COTTON AND TEXTILE SECTORPERFORMANCE16COTTON PRODUCTION16TANZANIA’S GINNING INDUSTRY17TANZANIA’S TEXTILE SECTOR17THE AFRICAN GROWTH ANDOPPORTUNITY ACT (AGOA)19LABOUR CONDITIONS AND WAGERATES29LOGISTICS AND TRANSPORTFACILITIESLOGISTICSINVESTMENT INCENTIVES ANDINSTITUTIONAL SUPPORT20FOREIGN TRADE ZONES/FREE PORTSLAND: AVAILABILITY, TENURES,OWNERSHIP ACQUISITIONPROCEDURES AND PROCESSES29INVESTMENT OPPORTUNITIES31USEFUL CONTACTS32ANNEXES332121PROJECT IMPLEMENTATION SUPPORTSYSTEMS AVAILABLE FORAGRICULTURE SECTOR22PROCEDURES FOR INVESTMENT2923ANNEX I: Status of the textileand garment industry in May 201533ANNEX II: Investment facilitationand service delivery34CTA SECTOR INVESTMENT PROFILE: TANZANIAWHY TANZANIA?5

List of FiguresFIGURE 1:EXPORTS OF GOODS AND SERVICES AS % OF GDP (2011–2014)12FIGURE 2:FDI NET INFLOWS (US ) (2011–2014)13FIGURE 3:TANZANIA’S SEED COTTON PRODUCTION (2008/09-2014/15) (TONS)16FIGURE 4:TANZANIA’S KEY MARKETS18FIGURE 5:TANZANIA’S EXPORTS BY MARKET DESTINATION18FIGURE 6:TANZANIA’S REVEALED COMPARATIVE ADVANTAGE18FIGURE 7:FDI INFLOWS TO TANZANIA25FIGURE 8:TREND OF PROJECTS REGISTERED WITH TIC25List of TablesTABLE 1:TANZANIA’S NON-TRADITIONAL EXPORT PERFORMANCE11TABLE 2:MAJOR TRADING COUNTRIES DURING 2013/1412TABLE 3:COMPOSITION OF EXPORT COMMODITY DURING 2013/1412TABLE 4:FOREIGN DIRECT INVESTMENT, NET INFLOWS (MILLION US ) (2011–2014)13TABLE 5:TANZANIA’S WITHHOLDING TAX RATES14TABLE 6:INCOME TAX RATES FOR RESIDENT INDIVIDUALS14TABLE 7:TANZANIA COTTON, TEXTILE AND APPAREL EXPORTS (2009-2013)17TABLE 8:TANZANIA’S TOP 5 EXPORTED COMMODITIES (2013)17TABLE 9:INVESTMENT TAX INCENTIVES20TABLE 10:COMPARISON OF KILOWATT–HOUR CHARGES BETWEEN TANZANIAAND SELECTED SUB-SAHARAN AFRICAN COUNTRIES26Abbreviations & AcronymsGDPUS WCGAECGACTA SECTOR INVESTMENT PROFILE: TANZANIAMT6ITMFVETAUSAEPZAGSPSSAAGOASIDOGross Domestic ProductUnited States DollarWestern Cotton Growing AreaEastern Cotton Growing AreaMetric TonInternational Textile ManufacturersFederationVocational Education TrainingAuthorityUnited States of AmericaExport Processing Zones AuthorityGeneralized System of PreferencesSub-Saharan AfricaAfrican Growth and Opportunity ActSmall Industries COMESASADCEACVATACPSMECETDar es Salaam Water andSewerage CorporationTanzania Electric Supply CompanyEuropean UnionEconomic Partnership AgreementMultilateral Investment GuaranteeAgencyAfrica Trade Insurance AgencyCommon Market for Eastern andSouthern AfricaSouthern African DevelopmentCommunityEast African CommunityValue Added TaxAfrican, Caribbean and PacificSmall and Medium-Sized EnterpriseCommon External Tariff

Tanzania: An OverviewThe United Republic of Tanzania was established in 1964 when the sovereign states of Zanzibar and Tanganyikaunited.Tanzania is 947,300 km2, which includes 54,337 km2 of inland water. The island of Pemba is roughly 984 km2and the island of Zanzibar is 1,657 km2. One of the five countries in East Africa, Tanzania is located south of theequator. Mainland Tanzania is situated between the area of Tanganyika, the Great Lakes of Victoria, Nyasa andthe Indian Ocean. It boasts roughly 1,400 kilometers of coastline and is bordered by eight countries: Uganda,Burundi, Kenya, Rwanda, Zambia, Malawi, the Democratic Republic of the Congo and Mozambique. Due to sixof these countries being landlocked, Tanzania provides natural access to the region.Between the years 2006 to 2014,Tanzania’s GDP grew at an average rateof 6.4%. This growth record has beenoutstanding. It has ranked among thetop 20 fastest-growing world economiesand has been above the Sub-Saharanaverage of 5.2%.The overall picture points to aprosperous future where the per capitaincome is growing at an average rate of7%, thus raising the level of consumptiveexpenditure.Key factsCapital:DodomaArea:947,300 km2Population:51.82 mm (2014)0–14 years:45.00%15–64 years:52.00%Labour force (over 15 years):25.28 mm (2014)Population growth:3.2% (2014)Youth literacy rate (15–24 years):86% (2012)Male:87% (2012)Female:85% (2012)Urban population:31% (2014)GDP (nominal):US 48.06 bn (2014)FDI inflow:US 2.04 bn (2014)Exports:19.5% of GDP (2014)Imports:29.9% of GDP (2014)Exchange rate (per US ):TZS 2,039.4 (2015 est.)Govt. expenditure:US 8.43 bn (2015 est.)Govt. revenue:US 6.82 bn (2015 est.)GDP per capita (nominal):US 955.1 (2014)GDP growth:7% (2014)Foreign reserve:US 4383.6 mm (2014)Inflation rate:6.1% (consumer price) (2014) shutterstock.comThe deficit balance of trade informsCurrency:Tanzania shilling (TZS)prospective investors that there is aOthermajorcities:Dar es Salaamhuge potential to exploit and utilizeLanguage:English, Swahili (official languages)available duty-free market opportunitiesin the European Union (EU), the UnitedReligion:Christians, Muslims, and Indigenous beliefsStates of America and South Africa, tomention a few. For a period of 10 years,Source: TIC, 2014; World Bank, 2015; WEF, 2015; CIA, 2016export value has grown by about 90%while imports recorded a growth of 70%.The headline inflation rate remained asingle digit in 2014 and the first quarter of 2015.The inflation rate averaged 6.1% in 2014compared to 7.9% in 2013.CTA SECTOR INVESTMENT PROFILE: TANZANIATanzania’s population is 51.82 millionin 2014. Of the total population, around97% live in mainland Tanzania and2% live in Zanzibar. The population isgrowing at a rate of 3.2%, with the youthunder the age of 15 years accountingfor 45%. According to the currentpopulation prospects of the UnitedNations, the population of Tanzania inthe year 2050 will rise to 129,420,000and, in the year 2100, to 275,620,000.The life expectancy in Tanzania is 61.4years.7

Analysis of the sectoral contribution to the GDPin 2014 indicates that services had the highestshare of 41.3%. Agriculture also continues tocontribute strongly to the GDP, accounting for 28.9%.Manufacturing and construction sectors combinedaccounted for 21.7%, of which manufacturing had5.6%. The small percentage contribution frommanufacturing is an indication that Tanzania is stilluntapped.TAXATIONTanzania’s fiscal regime is predictable and stable,offering all investors a soft landing. It is the type ofregime that recognises that investors need to recouptheir investment costs before they pay corporate tax.Taxes under the domestic revenue department areas follows. VAT, % – rate of 18 (Importation orsupply of goods and services); rate of 0(Export of goods and certain services); Corporate tax, % – rate of 0-30; Income tax, % – rate of 0-30 (for moredetail, please find Tanzania RevenueAuthority, Taxes and Duties at a Glance2015/ 2016); Skill and development levy, % –rate of 5 of employees’ total grossremunerations; Withholding tax (for pension, royalties,dividend payments, transport, insurancepremium, and disposal of assets).As an East African Community (EAC) memberstate, Tanzania enjoys a customs union that hasthe following key aspects: duty-free trade betweenmember states; a common external tariff (CET) onimports from third countries; and common customsprocedures.CTA SECTOR INVESTMENT PROFILE: TANZANIAGenerally, EAC import duty on finished products is25%, with 10% applicable for intermediate productsand 0% applicable for raw materials.8No duties are applicable to any type of fibre,because raw materials like cotton can be importedduty-free, with no restrictions. All yarn fibres havea duty rate of 10%, except for sewing threadimports, which have a duty rate of 25%. Usually,the 25% rate is also applicable to all woven andknitted conventional fabrics, ready-made home andgarment textiles, and carpets and other textile floorcoverings.Source: ACTIF (2013). Policy Research on the Kenyan Textile Industry:Findings and Recommendations.1To offer greater security to the local textilemanufacturing sector, a higher duty rate ( 50%) isapplicable to sensitive items like imported kitenges,kikois and kangas, both as made-ups and fabrics,and on woven cotton home textiles (table, toilet andbed linen). The duty rates for other sensitive textilesare 35% or US 0.20 per kilogram (whichever ismore) for worn articles and clothes, and 45% perbag for bags and sacks of jute and other textile bastfibres.1

BANKING SERVICES shutterstock.comThe banking industry in Tanzania has more than30 banks. Credit availability is an ongoing debatein Tanzania, citing high interest rates of up to 17%and the need to reduce them to a level that willencourage investors to invest in the country. Forextransactions are fully liberalized and investors faceno restrictions in importation of raw materials.In Tanzania, investors enjoy unconditionaltransferability of funds in the following areas:2 Payment relating to foreign loans; Investment’s net profits or dividends; Remittance of net earnings of all taxesand other requirements; Payment of salaries and fees and otherbenefits to foreign employees; Royalty fees and other charges.The transactions must be through any approved dealer bank and in freelyconvertible currency. shutterstock.comCTA SECTOR INVESTMENT PROFILE: KENYA29 shutterstock.com

MENTPROFILE:TANZANIA shutterstock.com1010

Why Tanzania? shutterstock.com Strategic location Peace and political stability Appealing investment regime Investment guarantees Investment incentives Abundant natural resources Member of bilateral trade agreements High growth potential Special economic and export processing zones Strong public-private partnerships Impressive leisure and business destinationsMAJOR REGIONAL INTEGRATIONAND TRADE POTENTIALEXTERNAL SECTORDEVELOPMENTSWith its abundance of natural resources, stablepolitical climate and strong macroeconomic policies,Tanzania has plenty to offer foreign investors.Tanzania’s exports to foreign and neighbouringcountries maintain a positive growth trend and areexpanded towards non-traditional exports, such ashorticultural products, manufactured products andminerals. For example, the performance trend ofnon-traditional exports has continually grown duringthe period 2009/10 to 2013/14 as shown in table 1.The country is eligible for the USA’s African Growthand Opportunity Act (AGOA), which offers duty-freeexports to the USA from certain sectors, includingtextiles. The European Union’s (EU’s) EverythingBut Arms (EBA) initiative enables Tanzania to exportsome goods to the EU tariff-free. Tanzania’s specialpreferential tariff agreement with China allows it toexport in excess of 400 products made in Tanzania toChina tariff-free.Table 1: Tanzania’s non-traditional exportperformanceYearAmount in million US .12013/144049.8Source: Bank of Tanzania Issue No. 0067–3757A hefty share of the growth derived from risinginvestment in mining, together with high production,mainly of gold. Major trading countries in whichcommodities were traded during 2013/14 are listedin table 2 and table 3.CTA SECTOR INVESTMENT PROFILE: TANZANIAThe country is the perfect starting point for accessingthe East African Community’s (EAC’s) growingmarket. Tanzania is a member of the EAC, alongwith Uganda, the Republic of Kenya, Burundi andRwanda. As a Southern African DevelopmentCommunity (SADC) member, Tanzania has access to13 member trading blocs, which have a population inexcess of 215 million people.11

Table 2: Major trading countries during 2013/14Exports by country of destinationImports by country of originCountryPercentage shareCountryPercentage shareThe Republic of South AfricaIndia17.3The Republic of India18.417The Swiss Confederation12.9SwitzerlandChina9.2China12.77The United Arab Emirates9.5The Democratic Republicof the Congo5.4South Africa5.8Kenya5.2Japan4.1Japan5Kenya2.7The Federal Republic of Germany3.6The United Kingdom of GreatBritain and Northern Ireland2.2Zambia2.1The United States of America1.9The Kingdom of Belgium2The Kingdom of Saudi Arabia1.8Others26.2Others27.9Source: Bank of Tanzania3.53.4Other 2Horticulture0.6Sisal0.4Other export products12.2CTA SECTOR INVESTMENT PROFILE: TANZANIA*Source: Bank of Tanzania12The wide gap between exports and imports (figure 1)and the need to minimise the same is motivatingpolicy to attract exports promoting investment,including FDI.Year 2011Year 2012Year 201329.9Re-exportFish and fish red goodsExports33.133.921.3Percentage of shareGold36.0ProductFigure 1: Exports of goodsand services as % of GDP (2011–2014)20.8Table 3: Composition of export commodityduring 2013/14Year 2014Source: Factfish, 2016FOREIGN DIRECT INVESTMENT (FDI)In general, the Tanzanian Government has afavourable approach to foreign direct investment(FDI) and has had significant success in attractingFDI. This is reflected in table 4 and figure 2, whichshow the trend for FDI inflows in East Africancountries.Top countries for the source of FDI in Tanzania includeChina, Canada, South Africa, Kenya and the UnitedKingdom. FDI is still growing, especially in the tourismand hotels, energy infrastructure, telecommunicationsservices, breweries, road construction, agricultureand mining sectors.

Table 4: Foreign direct investment, net inflows (million US ) 0142 044.55944.331 146.56291.73–20132 087.26371.851 096.00257.646.8820121 799.65163.411 205.39159.810.6020111 229.36139.86894.29106.213.35*Source: World Bank World Development Indicators, 2016Figure 2: FDI net inflows(US ) TAXATION POLICIES02011201220132014Source: World Bank World Development Indicators, 2016LABOUR CONDITIONS ANDWAGE RATESThe law allows private sector collective bargaining,but the Tanzanian Government sets wagesadministratively in the public sector. The countryhas a vast quantity of experienced human capitaland invests much in education compared to othercountries in Sub-Saharan Africa. Furthermore,Tanzania has put into practise advanced immigrationpolicies and encourages skilled people from acrossthe globe to apply for residence in Tanzania andcontribute to its economic growth. Under the EPZAct, the government can offer work permits fortechnical staff and management if these skills arenot on hand locally. Importing machinery is fairlyexpensive, which makes labour more appealing.Minimum wage in Tanzania is set by categoriesthat encompass 12 sectors of employment. Duringthe 2013/14 financial year, the minimum wageranged from TSh 100,000 (US 58.63) a month foragriculture labourers to TSh 400,000 (US 234.54)a month for labourers in the mineral sector(businesses with prospecting and mining licenses)(U.S. Department of State, 2015). More than 45working hours a week is permissible if overtime workTanzania’s fiscal regime is predictable and stable,providing all investors with a soft landing. It is thetype of regime that acknowledges investors’ needto recoup their investment costs before they paycorporate tax. The administration of several tax lawsis assigned to the Tanzania Revenue Authority (TRA),which is a semi-independent government agencyestablished by Act No.11 of Parliament in 1995. Itis in charge of a number of non-tax revenues andcentral government taxes. The 2015/16 financialyear applicable taxes are detailed in the followingsubsections.CORPORATE TAXThe corporate tax rate is 30% for non-reside

Feb 19, 2016 · CTA SECTOR INVESTMENT PROFILE: TANZANIA Tanzania: An Overview The United Republic of Tanzania was established in 1964 when the sovereign states of Zanzibar and Tanganyika united. Tanzania is 947,300 km 2, which includes 54,337 k

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