Saturday, February 21, 2009

Foreign Direct Investment (FDI) Helps too Little to Boost Tanzania Economic Development

During late 1980s economist came with the argument that Foreign Direct Investment (FDI) is one of the way of developing African stagnate economy. They argued that FDI represented about 60% of foreign exchange raised in all developing countries. FDI represents combination of capital, stock, know-how and technology (Della 1997). Majority of FDI orthodoxy continue to believe FDI is the only potential source of bridging the gaps in capability development, exploitation of resources and participation in the international markets. However, the argument is inconclusive. To be fair through FDI there is potential direct contribution to economic growth and technological improvements. However, such potential contribution depends on the type of FDI. For developing countries such as Tanzania, FDI suppose to be a means of acquiring a new technology, however there is more evidence that in Tanzania FDI is not an essential element for industrial and technological improvement.

The cheerleaders of FDI once argued that through privatizations (acquisition) of local firms to the foreigners, we will be able to rehabilitates those firms to be productive again. They argued that FDI will inject new technology and spillovers the know-how knowledge which will resuscitate stagnant industry. However, they missed the point when it comes to upgrading of local industries; it can only happen into two ways. First, by knowledge transfer to acquired firm, and second, by creation or upgrading of linkages with domestic economy. Research shows that FDI tend to increase out put/ productivity through introduction of new technology. However, that is not the case to majority of the foreign firms which acquired our local firms. We saw in TTCL, the company which acquired it didn’t upgrade TTCL into more advanced technology, instead it layoff massive amount of people; bring the so called management guru from Canada and that was the end of the story. When it comes to Tanzania majority of FDI came for the purpose of Natural Resources. They’re extracting these resources and ship them to their countries as raw materials, and that disprove the whole theory of FDI link to development of domestic economy. If Barrick cares a lot about Tanzania, why they’re not processing gold to a finished product in Tanzania?

FDI suppose to boost domestic economy through job creations or creation of supporting industry such as supplier and etc. However, the case is difference in Tanzania. For instance, Vodacom is one of the giant cell phone providers in Tanzania; however it employed less 800 employees (according to Vodacom Investor Newsletter of 2008). Also most of Vodacom suppliers are from South Africa and that kills the all idea of FDI. Apart from that most of their employees are located in the urban area such as Dar es Salaam. So, that raises the question how will FDI transform Tanzania economy while majority of the population located in the rural area?

The core center of Tanzania economy is agriculture which composite about 40% of Tanzania GDP, however there is less foreign investor who are eager to invest on that sector, and that bothered me so much. I asked my self over and over if FDI is so important then why not agriculture sector?

The FDI orthodox will always take you through the income statements of different companies which accepted FDI, and show you how profit improved. However, they will not discus about how human capital has improved. FDI is not supposed to be a new way of imperialism, or a new slave trade era. The notion that desperate Tanzania citizen are better off earning a dollar a day than no dollar at all, will not transform us to a better economy.
In conclusion, we need to stop thinking that foreigner will transform our economy to a more advance one. There is a need of renewing our patriotism toward our country, we were better off in 1970s than today. I don’t mean through looking at skyscrapers or more choices in the menu. But I mean through education standard, healthcare and economic growth.


Anonymous said...

Well said, however the article could have a look at a boarder range of companies that have enjoy FDI before coming to this conclusion probably the writer could have a look at companies such as TBL, NBC, CRDB and so on and so fourth.
There is a strong evidence that FDI has stimulated economic growth all around the world (India,Malaysia,China,Kenya,SA,UK USA etc) and one fails to understand why this is not the case for Tanzania .
All our countries need good policies and governance platforms to enjoy these economic prosperities.

salama said...

I will agree with you about the agriculture sector, which is the most important, I guess, especially in our country. That might even low our need for foreign aid. It's just unbelievable that up to this day we don't have better tools for that particular sector which is the backbone of our economy.
Technology improvement should be another goal to reach if the(FDI) is going to be or(is) the direct contribution to our economic growth. This shouldn't even be a matter of 'IF' but, 'WHEN' should the foreign investiments start/help us in that area.

However, I will disagree with you on patriotism. I think many will be more attracted to their country if, it will offer better choices. I understand that we have to overlook that notion of what my country will do for me and think about what I'll do for my country but, guess, there has to be some sort of attraction in our country for all those Tanzanian brilliant brains outside the country to go back and work to improve our economy.

Iddy Mwanyoka said...

Well said anonymous and Salama. I total support FDI, and I believe if foreign investors and donors will execute properly the strategy behind FDI then we will be able to boost Tanzania economic development. However, at this time the chance of Tanzania economic development to integrate under the umbrella of FDI is so slim.

Anonymous above mentioned the integration of banking sector was motivated highly by foreign direct investment. I total agree that, most of our banks increase the deposits because of transparency and trust that provided by foreign firms which acquired our banks. Even though deposits are so high compared to early 1990s, however the amount of loans provided for Small and Medium Enterprises (SMEs) or farmers are still small compared to the deposits. So, this undermined the whole notion that FDI will boost the creation or upgrading domestic economy. Also, the foreign banks are saturated in less than six region (Mikoa) and that rise the suspicious of the real reasons of investing in Tanzania.

Another example that FDI orthodoxy use is TBL, I strong agree that the company is very successful compared to early 1990s. However, the main suppliers for TBL are companies that located in South Africa. One of the purposes of FDI is to improve domestic economy, so how a supplier located in South Africa will boost the local economic development? I strong believe on FDI which boost the local economic development.

The last example that I want to share is majority of supermarkets in Tanzania are good example of FDI; however most of the products which they’re selling are coming from their countries. This not only undermines the whole scenario of FDI, but also it increases our deficit in Current Account.

Last, we should remember that IMF monitored our balance of payment in very close eye. So, if we’re not balancing our current and capital account, then IMF will always intervene and continuing to tell us what to do.

Again, the case for ASIA is total different. Western nations couldn't allow FDI to fail in Asia because of Geopolitical issues between capitalism and communism. On the other hand USA is example of successful FDI. For instance look at Toyota Corporation; they’re manufacturing cars in San Antonio and Indiana, in addition they’re using American suppliers, also they’re selling cars (finished products) in USA and that creates jobs and wealth across the board. Hence it assists the local economic development. Other examples include NestlĂ©, UBS bank and etc.