table of contents - EPZA

table of contents - EPZA

TABLE OF CONTENTS Director General’s Foreword ........................................................... 3 List of Abbreviations ...

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TABLE OF CONTENTS Director General’s Foreword ........................................................... 3 List of Abbreviations ....................................................................... 4 Chapter One: Tanzanian Economic Outlook .................................... 5 1.0

Background of the Export Economy in Tanzania ...................... 5

1.1

Trend in GDP Growth by quarter .............................................. 6

1.2

Trend in GDP Growth by sector ................................................ 9

1.3

Inflation rates ........................................................................ 10

1.4

Export earnings ..................................................................... 12

Chapter Two: Overview of Export Processing Zones Authority (EPZA) .................................................................................................... 14 2.0

Establishment of EPZA .......................................................... 14

2.1

EPZA’s Organization Structure ............................................... 14

2.2

Export Processing Zones (EPZ) program ................................. 15

2.3

Special Economic Zones (SEZ) program .................................. 16

2.4

EPZ and SEZ Incentives ......................................................... 16

Chapter Three: EPZA performance for the year 2011/2012 ........... 18 3.0

Economic Background ........................................................... 18

3.1

Overall budget strategy for the year 2011/2012 ...................... 18

3.2

Nature and objectives of output and performance ................... 21

3.3

Registration of EPZ companies ............................................... 22

3.4

Status of registered companies at BWM SEZ .......................... 28

3.5

Tanzania China Logistics Centre at Kurasini .......................... 29

3.6

Bagamoyo Special Economic Zone .......................................... 32

3.7

Mtwara Freeport Zone ............................................................ 34

3.8

Status of earmarked EPZ and SEZ areas ................................ 40

Chapter 4: Contribution of EPZ program to the Economy .............. 44 4.0

Economic Impact of EPZ program to the Tanzania Economy ... 44

Chapter 5: EPZA priorities for the financial year 2012/2013 ......... 49 1

5.0

Budget for the financial year 2012/2013 ................................ 49

5.1

Budget priorities .................................................................... 52

Chapter 6: Challenges, Way Forward and Conclusion ..................... 54 6.0

Challenges ............................................................................. 54

6.2

Way Forward ......................................................................... 57

6.3

Conclusion ............................................................................ 58

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Director General’s Foreword The Export Processing Zones Authority (EPZA) is happy to present this report which covers the annual performance of the Authority during the financial year 2011/2012. The Tanzanian economic performance during this period under review was generally on a declining trend compared to the performance of 2010/2011. This slowdown in economic growth resulted from power shortages which affected manufacturing and trade sectors. Besides these challenges, EPZA’s performance in 2011/2012 was marked by significant achievements by registering twenty (20) EPZ projects which together brought into the country a capital of US$ 142.2 million, projected annual export revenues of US $ 83.2 million and 2605 opportunities for direct employment. The new companies, plus the already registered EPZ companies continued to contribute positively to the Tanzanian economy. The EPZ program, since 2006 when it was brought under the Authority’s supervision has recorded growth in the number of operating enterprises, the number of gazzetted industrial parks, increase export revenues and created more than 16,000 direct jobs. Despite these achievements, the EPZ program continues to face a number of challenges. High cost of operations and production due to unreliable supply of electricity and water made the EPZ operating enterprises uncompetitive in the international markets. Given the status of EPZ/SEZ incentives, ongoing public debates are raising concerns on whether Tax exemptions are a strategy to attract FDIs or are losses in government revenue. This debate is discussed in this report and the Authority has given its views on the matter. EPZA believes year 2012/2013 brings brighter opportunities in terms of attracting investments in EPZ/SEZ. Dr. Adelhelm Meru Director General

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List of Abbreviations

AGOA

African Growth and Opportunity Act

EAC

East Africa Community

EBA

Export Business Accelerator

EDZ

Economic Development Zones

EIA

Environmental Impact Assessment

EOI

Export Oriented Industrialization

EPZ

Export Processing Zones

EPZA

Export Processing Zones Authority

FDI

Foreign Direct Investment

ICT

Information, Communication and Technology

IMF

International Monetary Fund

PPP

Public-Private Partnership

PAYE

Pay As You Earn

OFSH

Oil Field Supply Hub

SEZ

Special Economic Zones

TRA

Tanzania Revenue Authority

TPDC

Tanzania Petroleum Development Corporation

TPA

Tanzania Ports Authority

TPSF

Tanzania Private Sector Foundation

TCCIA

Tanzania

Chamber

of

Commerce

Association VET

Vocational Educational Training

VAT

Value Added Tax

WTO

World Trade Organization

4

and

Industry

Chapter One Tanzanian Economic Outlook 1.0

Background of the Export Economy in Tanzania Tanzania’s export economy has evolved and been shaped by changes in its social – economic regime and political philosophy since 1961. Five to six years after independence the economy of Tanzania had fairly liberal trade policies led by mixed market economy. The period between 1967 and early 1980s, Tanzania had a state controlled economy. From early 1980s, significant measures were taken to liberalize the Tanzanian economy along market lines and encourage both foreign and domestic private investments. Beginning in 1986, the government of Tanzania embarked on an adjustment program to dismantle socialist economic controls and encourage more active participation of the private sector in the economy. Since then, significant progress has been made in revitalizing the economy to rehabilitate Tanzania’s deteriorated economic infrastructure, and to liberalize the trade regime by emphasizing export economy. The aim of this move was to transform the economy from a supply constrained one into a competitive export-led entity responsible to enhance domestic integration and wider participation in the global economy through national trade liberalization. Traditionally, Tanzania has virtually endowed with abundance natural resources; its main exports have been in the form of raw, unprocessed materials with minimal value addition. The country has an agricultural economy whose chief commercial crops are sisal, coffee, cotton, tea, tobacco, pyrethrum, spices and cashew nuts. Agriculture accounts for 48% GDP, provides 85% of exports and employs 80% of the workforce. To sustain high growth rates of export, more efficient utilization of the existing production capacities in agriculture will need to be accompanied by value addition. Agro-processing leading to increased exports have a

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considerable multiplier effect on the economy. Basic industries such as food processing, leather working, and textiles play a crucial role in Tanzania’s economy. A 1996 study by the World Bank indicated that Tanzania could benefit from schemes such as Export Credit Guarantee and Export Processing Zones

and

therefore

recommended

the

establishment

of

Export

Processing Zones Authority which is the enabler of this export industrialization process.

1.1

Trend in GDP Growth by quarter During the year 2011, GDP at market prices growing at quarterly basis was not that much significant compared to the year 2010. The trend at average was that of a relatively slow growth on each quarter compared to the previous year. The real Gross Domestic Product at market prices for Tanzania economy has increased at a growth rate of 5.8 percent in the first quarter of 2011 compared to a growth rate of 7.3 percent in the corresponding period in 2010. In absolute terms, the QGDP for the quarter under review was Tshs 3,942,621 million in 2011 compared to Tshs 3,725,141 million in 2010. The slowdown growth emanated from the

existing

power

shortages

which

have

affected

particularly

manufacturing, trade and repair economic activities during the quarter under review. The Real Gross Domestic Product at market prices is estimated to have increased at a growth rate of 6.7 percent in the second quarter of 2011 compared to growth rate of 7.2 percent in the second quarter of 2010. In absolute terms, the QGDP for the quarter under review was Tshs 4,425,551 million in 2011 compared to Tshs 4,149,480 million in 2010.The Real Gross Domestic Product at market price is estimated to have increased at a growth rate of 6.4 percent in the third quarter, 2011 compared to growth rate of 6.7 percent in the third

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quarter, 2010. This is a decrease of 0.3 percent growth rate during the period under review. In absolute terms, the QGDP for the quarter was Tshs 5,265,049 million in 2011 compared to Tshs 4,946,678 million in 2010. The Real Gross Domestic Product at market prices is estimated to have increased at a growth rate of 6.5 percent in the fourth quarter of 2011 compared to growth rate of 6.7 percent recorded in the fourth quarter of 2010. This is a decrease of growth rate by 0.2 Percent. In absolute terms, the QGDP for the quarter under review was Tshs 4,304,352 million in 2011 compared to Tshs 4,042,655 million in 2010. Summary of GDP growth rates at market prices by Quarter 2011/2012 Year

1st

2nd

3rd

4th

Quarter

Quarter

Quarter

Quarter

2010

7.3%

7.2%

6.7%

6.7%

2011

5.8%

6.7%

6.4%

6.5%

Remarks

Power shortage which affected manufacturing and trade

Source: Tanzania Economic Survey 2011 From the above observation it is clear that the economic performance during the year 2011 was generally on a declining trend as compared to the performance of 2010. This slowdown in growth resulted from decreased growth rates in economic activities that have substantial contribution to GDP including agricultural; manufacturing and trade, the reason for this being the shortage of rainfall and power outages. In 2011, electricity and gas economic activities grew by only 1.5 percent compared

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to 10.2 percent in 2010. This is a substantial downfall on a very important and sensitive utility. This was attributed to decrease in the use of electricity and natural gas due to low production of electricity which emerged as a result of shortage of rainfall in the financial year 2011/2012. Contribution of electricity and gas economic activities to GDP was 1.8 percent in 2011. Graphical illustration of GDP Growth rates by Quarter between 2011

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2010 and

1.2

Trend in GDP Growth by sector According to the Economic Survey 2011, the real GDP in 2011 grew by 6.4 percent compared to 7.0 percent in 2010. The decline in growth resulted from shortage of rainfall in the country that affected badly the agricultural sector and sustainable generation of electricity in which case the two affected the manufacturing sector and other economic activities that have substantial contribution to GDP, including agricultural; trade and repair; and construction. The growth rate of agriculture economic activities increased to 3.6 percent in 2011 compared to 4.2 percent in 2010. This decrease in growth was mainly attributed to poor crop production due to bad weather in the 2010/11. The growth rate of crop sub activity decreased from 4.4 percent in 2010 to 3.5 percent in 2011. This was a result of decrease in crop production particularly maize, millet, sorghum and cassava. The share of agriculture activities to GDP was 23.7 percent in 2011 compared to 24.1 percent in 2010. Industry and construction economic activities grew by 6.9 percent in 2011 compared to 10.2 percent in 2010. The slowdown growth was attributed to poor performance in construction; water supply; and electricity and gas economic activities. The growth rate for manufacturing sub activity was 7.8 percent in 2011 compared with 7.9 percent in 2010. The slowdown in growth was a result of increased cost of production. However, the contribution of manufacturing activities to GDP increased from 9.0 percent in 2010 to 9.3 percent in 2011, an increase of 0.3 percent. The growth rate of the mining and quarrying sub activity decreased from 2.7 percent in 2010 to 2.2 percent in 2011. This slowdown in growth was attributed to decrease in gold production in large gold mineral reserves. The contribution of mining and quarrying sub-activity to GDP was 3.3 percent as it was in 2010.

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The growth rate of electricity and gas sub activities was 1.5 percent in 2011 compared to 10.2 percent in 2010. This was attributed to a decrease in hydro-electric power generation due to shortage of rainfall specifically to the sources of water fall of Mtera and Kihansi, increase in economic activities that enhance environmental destruction along water sources, and wear and tear of electricity generating machinery. The water supply sub-activity grew by 4.0 percent in 2011 compared to 6.3 percent in 2010. The decrease was attributed to the prolonged drought in the economy and increase in the number of people supplied with water. The growth rate of service economic activities was 7.9 percent in 2011 compared to 8.2 percent in 2010. This was due to slowdown in growth of the service sector with exception of small services economic activities such as financial intermediation; hotels and restaurants; trade and repair; and transport. The financial intermediation services sub activity grew by 10.7 percent in 2011 compared to 10.1 percent in 2010. The growth emanated from successful implementation of the Second Generation Financial Sector Reform Program; increase in credit to private sector; increase in the demand for money for investment purposes; insurance; and business services. 1.3

Inflation rates Inflation during 2011 was 12.7 percent compared to 5.5 percent in 2010. This rate of increase in inflation was largely attributed to increased price indices of electricity, water and food.

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Annual Inflation in EAC countries 2010 and 2011 S/n

EAC member State

December

December

2010

2011

1.

Tanzania

5.6

19.8

2.

Kenya

4.5

18.9

3.

Uganda

3.1

27.0

4.

Burundi

0.2

8.3

5.

Rwanda

4.9

14.9

Source: Tanzania Central Bank Website

Graphical illustration of headline inflation in EAC countries between 2010 and 2011.

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In 2011, prices for fuel went higher compared to the year 2010. The average price of petrol in the world market was USD 1,079 per ton, diesel USD 1,014 per ton and USD 1,074 per ton for kerosene. In 2011 the average pump price was shilling 2,050 per litre for diesel, shilling 2,055 per litre for petrol and shilling 1,625 per litre for kerosene as compared to the average pump price for the year 2010 which was shilling 1765 per litre for diesel, shilling 1,736 per litre for petrol and shilling 1,241 per litre for kerosene in 2010. 1.4

Export earnings Total export earnings as of November 2011 stood at US$ 6,776.2 million which marks an increase of 19.9 % compared to the value of export earnings for the period of 2010. Export sales of non-natural products increased by 21.3% which is equivalent to sales of US$ 3,746.2 million whereas sales of manufactured products decreased by 5.3 % equivalent to US$ 868.8 million by November 2011. Export sales of natural products increased by 21.7% equivalent to US$ 647.6 million being contributed by sales of coffee and tobacco. Export sales on services fetched an income of US$ 2,382.3 compared to the income of US$ 2,031.7 million collected on the year 2010, an increase of 17.3%.

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Export Sales by November 2011

Diamond&other minerals 1%

Fish 3% Flowers 1% Re export 2%

Manufactured goods 20% Gold 50% Other 10% Tobacco 6%

Coffee 4% Cotton 1%

cashew 2%

Source: Economic survey 2011

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Chapter Two Overview of Export Processing Zones Authority 2.0

Establishment of EPZA The Export Processing Zones Authority (EPZA) is an autonomous Government agency under the Ministry of Industry and Trade. The Authority was established in 2006 following the 2006 amendments to the EPZ Act. The Authority’s core function is to coordinate and supervise Export Processing Zones (EPZ) and Special Economic Zones (SEZ) programs in Tanzania. EPZA’s objectives include among others; to attract and promote EPZ and SEZ investments for fast tracking industrialization process, to provide efficient facilitation services to EPZ and SEZ investors; to encourage value addition of local raw materials; to create and increase employment opportunities and to increase foreign exchange earnings.

2.1

EPZA’s Organization Structure

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EPZA Board The Authority has a strong board comprising of eleven key government figures. The Chairman of the board is the Minister for Industry and Trade and the secretary of the Board is the Director General of EPZA. Other members of the Board include the Attorney General, four Permanent Secretaries from the Ministry of Finance, Local Government and Regional Administration, Energy and Minerals and Ministry of Water. Other members are the Executive Secretary of the Planning Commission from Presidents’ Office, Commissioner General of TRA, Commissioner for Lands, Chairman of TPSF and President of TCCIA. 2.2

Export Processing Zones (EPZ) program The EPZ program was established in 2002 following the enactment of the Export Processing Zones Act of 2002. The scheme promotes export oriented manufacturing investments within designated zones aimed at creating international competitiveness for export-led economic growth. One of the basic criteria for EPZ licensing is that at least 80% of the produced goods must be exported, while the remainder may be sold in the local market. An EPZ local investor must have minimum annual export earnings of US$ 100,000 while for a foreign investor the minimum annual export earnings must be US$ 500,000. The priority sectors for EPZ investments in Tanzania are; textile and garments, agro processing, leather processing and manufacture of leather products, fish processing, lapidary (gold, diamonds and gemstones including the famous Tanzanite), wood products, electrical and electronic appliances and information and communication technology (ICT) industries. Categories of EPZ set ups in Tanzania include Industrial Parks and Stand Alone (Single Unit Factories). EPZ investment projects in Tanzania are divided into three major investment types: - EPZ Developers which are projects invested in development of EPZ infrastructure, EPZ Enterprises,

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these are investment projects undertaking EPZ operations and EPZ Service providers, companies providing utility and other business services to EPZ developers and operators. 2.3

Special Economic Zones (SEZ) program The SEZ program was established in 2006 following the enactment of the Special Economic Zones Act of 2006. SEZ program is a strategy to implement the Mini-Tiger plan 2020 and promotes multi-sectorial investments in designated areas for domestic and foreign markets. Based on the SEZ Act of 2006, the main objective of the establishment of the program is to increase productivity, to enhance competitiveness, to promote economic growth, to promote both foreign earnings and domestic sales and to increase employment opportunities. Like in EPZs, types of investments in SEZ include SEZ Developer, SEZ Enterprises and SEZ Service Provider. The minimum capital for SEZ investment is set at US$ 100,000 for local investors and US$ 500,000 for foreign investors. SEZ investment projects may include one or more of the following areas, Industrial Parks, Export Processing Zones, Free Trade Zones, Freeport Zones, Tourist Parks, Technological Parks and any other areas as prescribed by the Authority. The priority sectors for SEZ investment projects in Tanzania are; agriculture and agro industrial, industrial parks, tourist parks, commercial parks, forestry park, ICT park, banking and finance parks.

2.4

EPZ and SEZ Incentives Under the EPZ and SEZ Act, investors can access a range of attractive fiscal, non fiscal and procedural incentives designed to facilitate lower cost of operations, faster set up and smoother operations. The fiscal incentives are enjoyed not only by investors who are engaged in the manufacture and export of industrial products, but also for those who provide infrastructure necessary for the establishment of EPZs or SEZs.

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2.4.1

Investment incentives for EPZ program a) Exemptions from customs duty, VAT and any other taxes charged on raw materials and goods of capital nature b) Exemption from payment of corporate tax for an initial period of ten years c) Exemption from payment of withholding tax on rent, dividends and interest for the first ten years d) Exemption from payment of all taxes and levies imposed by local government authorities for goods and serviced produced in the EPZs for the period of ten years e) Subject to compliance with applicable conditions and procedure, accessing the export credit guarantee scheme.

2.4.2

Investment incentives for SEZ a) Exemption from payment of taxes and duties for machinery, equipment, heavy duty vehicles, buildings, construction materials and any other goods of capital nature to be used for purposes of development of the Special Economic Zone infrastructure b) Exemption from payment of property tax for the first ten years c) Exemption from customs duty, VAT and any other tax charged on raw materials and goods of capital nature

related to the

production in a Special Economic Zone d) Exemption from payment of withholding tax on interest on foreign sources loan e) Exemption from Customs Duty and VAT payable on respect of importation of one administrative vehicle, ambulance, firefighting equipment, fire fighting vehicles and up to two buses for employees’ transportation to and from the Special Economic Zone

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Chapter Three

EPZA performance for the year 2011/2012 3.0

Economic Background The

economic

period

under

review

had

adversely

affected

the

performance of EPZ program. High cost of operation and production especially high tariffs on electricity worsened up by regular unreliability of power supply made the program uncompetitive in the regional and global market. The effects of economic downturn were mainly observed in

agriculture economic activities, manufacturing and industry and construction. However, during this year under review, there were milestone in addition to the economic drawbacks noted earlier. EPZ program continued to record growth in the number of both registered EPZ enterprises. The EPZ program has made its share of contribution to the Tanzanian economy through attraction of new investments which has created new jobs, increased value of capital investments, export earnings and value addition among others. This chapter therefore provides insight to the EPZ performance given the status of the national and international economic environment. 3.1

Overall budget strategy for the year 2011/2012 The 2011/2012 budget was the fifth budget since the establishment of the EPZ Authority. The budget comprised of four major components. These were other charges (OC); Salaries; Mini-Tiger and EPZ Development. It identifies EPZA’s two sources of income as being the Government Subvention and Funds from Internal Sources. However the main source of funds for the Authority was Government Subvention. EPZA’s income from Internal Sources was mainly from lease of land and office space at Benjamin William Mkapa Special Economic Zone (BWM-SEZ), application

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and registration of EPZ licenses as well as sale of tender and other documents. During the financial year 2011/2012, the Authority’s actual requirement for EPZ and SEZ programs was Tshs 78,629,096,788; however, only Tshs 5,144,504,120 was approved by the Government as EPZA’s total budget for the financial year 2011/12; out of which, Tshs 4,844,504,120 was to be collected from Government Subvention and Tshs 300,000,000 from EPZA’s Internal Sources (i.e. EPZ registration fees, renewal of EPZ Licenses, sale of Publications and Tender documents and Lease of Land and Office Space at BWM-SEZ). By the end of June, 2012 the Authority had received from the Government a total of Tshs 959,874,260 which is equivalent to 19.81% of the approved government subvention. The amount comprised Tshs 550,000,000 of the Mini Tiger (SEZ) budget which is equivalent to 14%; Tshs 130,000,000 of the EPZ Programme budget which is equivalent to 48%; Tshs 46,584,400 equivalent to 93% of the recurrent budget (OC) and Tshs 233,289,860 which is equivalent to 49.9% of the budget for Personnel Emoluments. Collections from internal sources for the last twelve months (July 2011 – June 2012) was Tshs. 322,930,530 which is about 108% of the projected internal revenue for the entire financial year. The internal collection was mainly from the lease of plots at Benjamin William Mkapa SEZ. The following table shows a summary of EPZA’s projected annual budget based on actual requirements; respective approved budget and the actual receipts during the financial year 2011/2012.

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Projections,

budget

and

actual

collections

for

financial

year

2011/2012 Financial Year 2011/2012 ( 12 months) EPZA

Approved

Actual

Variance

%

projections

Budget

Fund

Approved

difference

received

vs

Narrations

Actual

received Tshs ‘000 Mini

Tshs ‘000

Tshs ‘000

Tshs ‘000

4,056,164

550,000

(3,506,164)

-86

1,832,500

271,000

130,000

(141,000)

-52

697,208

50,000

46,584

(3,416)

-7

723,063

467,340

233,289

(234,051)

-50

78,629,096

4,844,504 959,873

(3,884,631) -80

300,000

300,000

22,930

78,929,096

5,144,504 1,282,803 (3,861,701) -75

Tiger 75,376,325

2020 EPZ development Other Charges Personal Emolument Total Government Subventions Internal

322,930

8

sources Grand Total

20

3.2

Nature and objectives of output and performance As reported above, during the twelve months period of the financial year 2011/2012, EPZA received from the Government only Tshs 959,874,260 equivalent to 19.8% of the approved subvention of Tshs 4,844,504,120. As a result, most of the planned activities were not fully implemented due to insufficiency of funds.

Major activities which could not be

implemented due to lack of funds but were planned on the financial year include: a) Land compensation at Bagamoyo, Mara, Ruvuma and Tanga EPZ/SEZ sites. b) Preparation of land use plans for Arusha, Tanga, Mbeya, Morogoro and Mtwara SEZ. c) Undertaking feasibility studies for Mtwara, Tanga, Arusha and Mara SEZ sites. d) Undertaking land valuation for Mtwara, Kilimanjaro, Mbeya and Lindi SEZ sites. e) Construction of a sewerage line from BWM-SEZ to Mabibo oxidation ponds. f) Construction of Industrial sheds at BWM-SEZ. g) Preliminary development of a Business Centre at EPZA’s open space outside BWM-SEZ. h) Establishment of a one stop service centre. i) Procurement of three motor vehicles for monitoring and evaluation of EPZ/SEZ operations. Despite of these financial constraints, the key outputs which were achieved during the financial year 2011/2012 includes payment of land and property compensation to all beneficiaries around the BWM-SEZ complex. EPZA also managed to identify EPZ/SEZ sites in five (5) Regions which are Kahama in Shinyanga, Manyoni in Singida, Nzega in Tabora, Msalato in Dodoma and Malonje in Rukwa. This status has made the

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number of regions that have set aside land for EPZ/SEZ development to increase from 15 to 20. In addition to this remarkable achievement, 20 EPZ Enterprises were registered. During this financial year, the Authority continued with promotion of EPZ and SEZ programs nationally and internationally through mass media, investment forums, national and international trade fairs and investment conventions. Development of SEZ regulations for the SEZ Act of 2006 were done to final stage to be accomplished in the early months of the financial year 2012/2013 as well as the Master Plan for the development of Bagamoyo Special Economic Zone. 3.3

Registration of EPZ companies In the first quarter of the financial year 2011/2012, EPZA licensed four companies in different sectors to engage in production of goods for export as per EPZA requirements. The four registered companies were standalone factories. None of these companies were registered to operate in the BWM-SEZ or located in any other industrial parks. The registered companies include Power Food Industry Ltd located at Kawe, Dar es Salaam which engage in production of nutritious food, Princeware Company Ltd located along Pugu Road, Dar es Salaam, which deals with production of plasticware house products.Urafiki Gems Ltd which is a subsidiary of Tanzanite One Ltd located at Mererani, Arusha engaged in processing of Tanzanite gem stones and Biabana Company Ltd which is located at Costal Region dealing with printing and publishing business. In the second quarter of financial year 2011/2012, EPZA issued three EPZ Enterprises licenses. All the three enterprises were licensed to operate in BWM-SEZ, the registered enterprises includes Tanzania Tooku Garments that deals with textile products for export, Techpack Wovers

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Ltd, that produces Cement packaging materials, and Despec Africa Ltd which deals with assembling of computer accessories. In the third quarter of the financial year 2011/2012, EPZA licensed six companies to produce and export as per EPZA conditions, among the six registered companies under EPZA, four were registered to operate in the BWM-SEZ, these includes, Maptex Ltd, which deals with production of bed sheets and khanga, T-better Holdings company Ltd which deals with cashewnuts processing and Lena Holdings and Investment Company Ltd which deals with construction of Industrial Sheds and Tube Ltd which deals with manufacturing of packaging materials. The remaining two companies were standalone companies which includes Neelkanth Lime Ltd which is located at Tanga dealing with Limestone processing, and Kohnoor Manufacturing Company Ltd which is located at Tabata, Dar es Salaam, engaging in Textile production. In the Fourth quarter of financial year 2011/2012, EPZA registered seven companies; out of the seven registered companies six were registered as standalone companies, these includes, Aspam Energy Ltd located along Pugu Road, Dar es Salaam dealing with refinery of used lubricant oils, Solvochem (T) Ltd located in Mtwara that is engaged in Petrochemicals processing, XingHua Investment Ltd which is located in Shinyanga and engaged in meat processing, Kinshen Ltd which is located along Pugu road, Dar es Salaam that deals with assembling of motorcycles, Kamdehumu Credits Company Ltd located at Kiwalani, Dar es Salaam which deals with recycling of lead from car batteries and Massad Company Ltd which is located in Shinyanga and engaged in mineral processing. The remaining one company which is Golseek Company Ltd is located at BWM-SEZ and deals with gold processing.

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In total, during this period under review, EPZA registered 20 EPZ companies out of which 12 companies were registered as single unit factories (stand alone) and 8 companies were registered at BWM SEZ. These 20 companies together have invested total capital of US$ 142.2 million and projected annual export revenues of US$ 83.2. The same registered companies have created 2,605 direct employments. From this background; a positive trend of company registration is observed which shows a remarkable achievement to EPZA performance. This indicates a significant publicity and awareness of the program to both local and foreign investors. Seventy five percent (75 %) of the registered stand alone factories are located in Dar es Salaam and the remaining 25% of the stand alone factories are located in Shinyanga and Arusha respectively. On the basis of sector, 30% of the registered stand alone factories are on agro processing and another 30% mineral processing. Stand alone factories registered on engineering sector are 20 % and manufacturing sector had 20% of the registered stand alone factories. This indicates a balanced diversification of investment projects cutting across at least all the priority sectors.

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Trend of EPZ registered companies in FY 2011/2012 on quarter basis.

Table of EPZ registered companies FY 2011/2012 by sector S/n Sector

in

which

EPZ Number

company was registered

companies

of

Percentage %

registered 1.

Agro processing

2

35

2.

Mineral processing

5

15

3.

Engineering

7

15

4.

Others

3

25

5.

Textile

3

10

20

100

Total

25

EPZA registered companies by sector on FY 2011/2012

EPZA registered compaies by sector 2011/2012

Textile 10% Agro Processing 35%

Others 25%

Mineral Procesing 15%

Engineering 15%

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List of EPZ Standalone factories registered in FY 2011/2012 S/n

Name

of

EPZ

registered Sector

Location

company 1.

Power Food Industry

Agro processing

Kawe,

Dar

es

salaam 2. 3. 4. 5.

Prince Ware Ltd

Manufacturing of Pugu Road, Dar

Urafiki Gems Ltd Biabana Company Ltd NeelKanth Lime Ltd

plastic products

es salaam

Mineral

Mererani,

processing

Arusha

Printing

and Bagamoyo, Coast

publishing

Region

Limestone

Tanga

Processing 6. 7.

Kohnoor

Manufacturing Textile

Tabata, Dar es

Company Ltd

production

salaam

Solvochem (T) Ltd

Petrochemicals

Mtwara

processing 8.

Xing Hua Investment Company Meat processing

Shinyanga

Ltd 9.

Kinshen Import and Export Ltd

Assembling

of Pugu road, Dar

motorcycles 10. 11. 12.

es salaam

Kamdehemu credits company Recycling of lead Kiwalani, Dar es Ltd

from car batteries

Aspam Energy Ltd

Recycling of used Pugu

Massad Company Ltd

salaam road,

oil

Dares salaam

Mineral

Shinyanga

processing

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3.4

Status of registered companies at BWM SEZ The Benjamin William Mkapa –SEZ is located in the city of Dar es salaam, the site is only 12 km from the port of Dar es salaam and 8 km West of Dar es salaam city center. The site is located on plot number 1081, Block B at Mabibo Ubungo along Nelson Mandela Expressway. The site is only 2 km away from Morogoro road which is one of the main spine roads connecting the city centre. The location of the site allows for easy connection between the SEZ site and both Dar es Salaam port (12km) and Dar es salaam International Airport (14km). The area of the site is 25 Ha (around 65 acres). BWM-SEZ is the first and so far the only government owned industrial park in the country. Construction of the zone started in October 2005 under

the

then

Empowerment.

The

Ministry zone

of is

Planning, fully

Economic

developed

with

Affairs basic

and onsite

infrastructure including a cafeteria building, shopping arcade, water tank, customs building, roads, street lights and a fencing wall. There is also an electrical substation, sewerage system connection to DAWASCO pipes, fire station building, main gate, administration block with sufficient office space and Mt Kilimanjaro monument. The zone has serviced plots occupying a total area of 22 hectares with individual plots for lease ranging between 3000 m2 and 11,000 m2. This site was officially inaugurated by The President of the United Republic of Tanzania, HE Dr. Jakaya Mrisho Kikwete in May 2010. Currently a total number of 17 investors have been leased plots in this zone and 2 investors have completed construction of factories and started production, while 8 Investors are in the final stage of completing construction of factories and 7 are in different stages of construction. Investors who were leased plots for construction of different factories during this financial year are as follows;

28

BWM-SEZ Companies July 2011 to June 2012 S/n Name of Company

1.

Tanzania

Origin by country

Tooku China

Sector

Textile

Garments Ltd 2.

Techpack Wovers Ltd

Tanzania

Engineering

3.

Despec Africa Ltd

India

Engineering

4.

Maptex Ltd

China

Textile

5.

Lena Holdings

Dubai

Engineering

6.

T-Better Holding

China

Agro Processing

7.

Tube Ltd

Tanzania

Manufacturing

8.

Golseek Company Ltd

Tanzania

Gold Processing

3.5

Tanzania China Logistics Centre at Kurasini Background This project follows the ‘Sino-Africa Cooperation’ meeting held in 2009, in Cairo, Egypt. During this meeting the Government of China showed interest to construct, develop and operate Trading Centres in four countries in Africa. As a result of the current relationship the government of Tanzania has with China, Tanzania has been chosen as the first country among the four in Africa where China will locate the Trading Centre. This project will be constructed in partnership (PPP)

29

where the government of Tanzania will be represented by EPZA. Development of the Trading Centre will be in two phases. The first phase will involve construction of a trading centre which will be a hub for East and Central Africa in distributing high quality Chinese products. East and central African traders will be able to be delivered goods in time from this centre instead of travelling all the way long to China to purchase such products. The second phase of this project will involve construction of factories for value additional on locally available raw materials where the focus will be on agro processing. Land for the project has been earmarked at Kurasini Shimo la Udongo in Dar es Salaam city with an area of 60 acres. Compensation for this area is estimated by the Ministry of lands to amount to Tshs 60 billion. The Chinese government has accepted to cover all the construction cost of the project amounting to US $ 400 million which is almost equivalent to 640 billion Tanzanian shillings. Commencement of the project is awaiting compensation of the earmarked land. EPZA will use the same land as equity in the partnership. This project which is highly chased by many other African countries has been discussed and accepted at different government levels.

3.5.1 The project details, objectives and purpose The Tanzania-China Logistics Centre is proposed to be a multifunctional logistics centre. This is because Tanzania is strategically located and it plays a critical role in facilitating neighboring and land locked countries as a trade hub. Geographically as a resource base, the establishment of a hub has been one of the government’s longstanding idea which will inevitably influence the development of a network of infrastructures to facilitate trade through the hub. This logistics centre will therefore perform the following core activities.

30

a) Showrooms for display of products manufactured in China b) Wholesale activities c) Storage

and

warehousing

including

bonded

warehousing

operations and an Inland Container Depot (ICD) d) Offices, housing estates and apartments e) Assembly and processing of products from China and Tanzania (assembly and manufacturing activities) and f) Training of local experts (capacity building)

3.5.2 Implementation Plan The envisaged centre will be implemented for the mutual benefits (winwin

basis)

between

Tanzania

and

China.

The

planning

and

implementation of the project is also open for involvement of other interested parties under PPP basis. On the part of China the implementation will be represented and undertaken by a consortium of Shanghai based China International Engineering Consulting Corporation and the Yiwu based Zhejiang China Commodities City Group and will be modeled on Yiwu Commodities Centre. The establishment of the centre is expected to be implemented in two phases; 

Phase I

will involve establishment of the display platform,

wholesale, bonded warehousing and storage facilities 

Phase II

will involve the establishment of the assembly and

manufacturing

or

processing

platform

including

residential

apartments for the workers.

3.5.3 Current status and way forward The government has allocated 60 Billion Tshs for compensation at Kurasini Shimo la Udongo area to be paid next financial year 2012/2013.

31

3.6

Bagamoyo Special Economic Zone Location The zone is located about 45 km north of Dar es Salaam along Dar es Salaam Bagamoyo road. It is situated in Pwani region, Bagamoyo district, Zinga Ward and constitutes five villages namely Zinga, Kondo, Mlingotini, Pande and Kiromo.

3.6.1 Project description, objectives and purpose The project involves construction of major onsite infrastructure. The total zone area is 9,081 hectares, approximately 93 square kms. The area allocated for industries is 4,700Ha. while the remaining area will accommodate Port, Recreational and Tourism Zone, Residential Zone, Educational Zone, Commercial Zone, greenbelt and conservational areas, railway corridor and marshalling yard. The following onsite infrastructure are envisaged to be constructed in the Bagamoyo Special Economic Zone:- roads, water supply, power supply, sewage system including treatment plant, gas network, telecommunication network, storm water drainage system, liquid and solid waste disposal sites. Bagamoyo SEZ is well connected to various parts of the world. Envisaged Sea transport, network will connect the area with emerging global markets including the Middle East, China, India and East Asia, while the railway transport links Bagamoyo with land locked markets of Central and Eastern Southern Africa as well as with the domestic market. The road and air transport provides for a logistics network with major production centres, market and trade centers in Tanzania. As a whole, the sea road, air and railway transport networks link Bagamoyo, Tanzania efficiently with overseas suppliers and markets, and facilitates internal supply chains. Furthermore, River Ruvu provides an opportunity for river based and canal transportation of huge quantities by barrage within the SEZ.

32

Proximity to national power grid, availability of reliable sources of water and efficient telecommunication facilities are also very essential for a Special Economic Zone. Bagamoyo is close to the national power grid, has reliable sources of water, it has wire and wireless telecommunication network, and its located within the boundaries of the fiber optic cable network. The proximity to Dar es Salaam enables the proposed SEZ to easily access the industrial clusters, business and technical support facilities, skilled labour and other trade related facilities that are available in Dar es Salaam. Skilled and unskilled labour force can as well be easily accessed from neighboring area including Kibaha and Morogoro.

3.6.2 Current status and Way forward. The following activities have so far been executed; a) SEZ area demarcated and gazetted b) Aerial survey done c) Feasibility study for establishment of Bagamoyo Special Economic Zone and preparation of land use plan undertaken in 2010. d) Master plan is in final stage. Final report to be submitted in September 2012. e) Funds for compensation have been allocated within the budget of the next financial year 2012/2013 and compensation will start immediately on the first months of the financial, July and August 2012. f) EPZA is currently inviting interested developers and financial institutions

to

collaborate

infrastructure.

33

with

EPZA

in

developing

SEZ

g) TPA is also inviting interested companies to develop the Mbegani Port on PPP basis. 3.7

Mtwara Freeport Zone The recent petroleum exploration successes in Tanzania have created unprecedented opportunities for the industry. Deep sea Oil and Gas (O&G) exploration endeavors in Tanzania have picked pace and has resulted in the need to strategize the business. Petroleum exploration companies are taking a greater interest in managing the total supply chain of materials and equipment. To fulfill this; the exploration companies are also taking steps to establish logistics/distribution centers,

especially

around

the

Mtwara

Port

to

improve

their

competitiveness by reducing procurement costs for inventories and equipment. The main objective for the initiative is to ensure that the exploration companies obtain swift and timely value added logistic services. The influx of petroleum exploration in Tanzania has necessitated the Government to consider introducing a Freeport Zone at the Mtwara Port. Exploration Companies as well as Suppliers and Service Providers have all shown interest to locate their businesses in Mtwara. It is believed that the setting up of a Freeport Zone in Mtwara will provide an excellent opportunity to Tanzania. The Government will be able to tap Foreign Direct Investments (FDIs) which is necessary for the Country’s economic growth. Following this, the Government decided to set up a team drawing members from key stakeholder institutions namely Tanzania Ports Authority (TPA), the Tanzania Revenue Authority (TRA), the Export Processing

Zones

Development

Authority

Corporation

(EPZA)

(TPDC)

34

to

and find

the out

Tanzania the

Petroleum

possibility

of

establishing such a Freeport Zone in Mtwara. The team reviewed various literatures; conducted desktop studies, performed orientation visits and also toured the Mtwara Port. The Task Force Team recommended the establishment of an Oil and Gas Freeport Zone on a 10 Ha. piece of land within the Mtwara Port as phase one and on another piece of land totaling 100 Ha as phase two. The phase one Freeport Zone will serve as an Oil Field Supply Hub (OFSH) that will house various Suppliers and Service Providers to the Oil and Gas Exploration Companies. So far 12 Companies have already expressed

interest

to

locate

at

the

Freeport

Zone

which

are:

Schlumberger; Cameron, Drilco, Weatherford, Halliburton, Algoa, FMC, Wood group, Baker Hughes, Ocean Rig, Odfsell and Transocean. Establishment of the Freeport Zone in Mtwara will bring economic benefit to Tanzania. The establishment of the Zone is a prerequisite for Tanzania’s future progress of the petroleum industry and other development projects. The Freeport Zone at Mtwara will be a key facilitator for industrial growth and service provision. The Mtwara Port will be more economically viable and dynamically active in facilitating Exports and Imports of goods in Tanzania and the entire Eastern Africa. Specifically the study indicated the following as being the rationale for establishing the Mtwara Oil and Gas Freeport Zone: a) Taping the advantage brought by Mtwara port being on a strategic location b) Taping Foreign Direct Investments c) Creation of over 1000 direct jobs d) Creation of foreign exchange earnings e) Opportunity for forward linkages to the oil and gas exploration companies.

35

f) Increased Government Revenues from port charges, Corporation Taxes, PAYE, VET levy (as well as on VAT and Customs Duty for all the cargo that will be offloaded into the customs territory). g) Opportunity to increase logistics efficiencies to the Oil and Gas industry though simplified customs procedures h) Opportunity for the Government to support the Oil and Gas industry in a streamlined manner. i) Economic growth of various sectors through the multiplier effect of the FDIs. The Mtwara Port will directly benefit from such an investment. The Mtwara Port as land owners will collect port charges from port activities as well as rental income from the leased land and warehouses at the Freeport Zone. It is projected that the Port activities will increase tremendously as a result of the establishment of a Petroleum Exploration Logistics Base at Mtwara for Tanzania and the entire East African region. The outlook is perfect for the Free Port Zone to become a world-class oil logistics base by offering an ideally situated Oil and Gas Supply and Service hub. It is also considered that the establishment of a Freeport Zone at the Mtwara Port will create a good opportunity to stimulate more activities other than the shipment of cashew nuts at the Mtwara Port.

36

3.7.1 Proposed 10 Ha Freeport Zone area in Mtwara Port FPZ Phase I

FPZ Phase II

3.7.2 Current status and way forward The idea to develop a dedicated oil and gas Freeport Zone at Mtwara port was conceived in 2009 in order to handle exploration operations in Tanzania in anticipation of the deep sea drilling that was impending. With massive equipment to move around, extensive materials and consumables to handle, it became imperative that the Oil and Gas Exploration Companies deliberate on the most efficient and effective way to manage those operations. The oil companies needed to:

37

a) Facilitate

their

procurement

and

logistics

requirements

for

exploration and development programs; b) Satisfy “just in time” policies for offshore requirement; c) Put in place and co-ordinate a regional procurement approach; d) Implement a cost savings approach by reducing inventories through the utilization of the “stockiest” concept; e) Have the ability to share both facilities and services. In 2009, three oil/gas companies that were to undertake drilling operations in the deep sea sought to enter into an agreement with the Tanzania Ports Authority (TPA). The objective for the agreement was for the oil/gas companies to lease from TPA a designated area at the port of Mtwara to use as a supply base to support their drilling campaigns. The companies required to upgrade berthing facilities for supply vessels; dockside space for storage, cleaning and preparation of well casing pipes; facilities for preparation, storage and maintenance of specialized drilling tools; bulk storage facilities for powdered materials; facilities for preparation and storage of drilling fluids; supply of marine diesel fuel and water used by the drilling rig and supply vessels. In 2010, TPA and the companies entered into an agreement for the companies to lease a designated area at the port of Mtwara to use as an oil supply base to support its drilling campaign. The companies thereafter upgraded the leased area in order to make it fit for the purpose of its operations as an oil and gas supply base. The Oil and Gas Exploration Companies have maintained huge stocks of various drilling equipment, supplies and consumables. While tremendous efforts have been made to create conducive business environment for the Mtwara Port to support the drilling operations; the lack of an Oil and Gas Supply and Service Hub is still an impediment. This is due to the fact that oil companies’ nature of operations requires huge costs to ensure that there

38

are no disruptions in the drilling operations and hence would not allow stock-outs. However; maintenance of high stocks is inefficient and is quite costly to the exploration companies. With the increasing deep sea seismic acquisition and exploration drilling, the oil companies cannot facilitate specific and specialized services that are normally provided by Service Companies. The need for a centralized distribution centre with better environment for development of the industry has become overriding. In order to enhance and support the Oil & Gas Industry, there is need for Tanzania to provide the necessary support infrastructure and enabling environment for trouble free operations. This can be done by providing cost effective solutions in procurement logistics and supply chain management. This calls for the introduction and development of the Oil and Gas Free Zone within Mtwara port as a distribution centre for Tanzania and Eastern and Southern Africa. The Mtwara Oil and Gas Freeport Zone is intended to support global procurement

policies

and

logistics

co-ordination

beyond

national

boundaries. In addition the Freeport Zone will enhance socio-economic and political integration in the region. The Task Force Team is convinced that the establishment of a Special Economic Zone (SEZ) at Mtwara Port will bring economic benefit to Tanzania. The establishment of a Freeport Zone is a prerequisite for Tanzania’s future progress of the petroleum industry and other development projects. The Freeport Zone at Mtwara will not only be a key catalyst for industrial growth and service provision, but will also make the Mtwara Port more economically feasible and dynamically active in

39

facilitating Exports and Imports of goods in Tanzania and the entire Eastern Africa. Summary of the current status for the establishment of Mtwara Freeport Zone S/n Activity to be undertaken

3.8

Responsible Institution

Remarks

1.

Completion of Master Plan and TPA identification of contractor for development of infrastructure

Ongoing/in progress

2.

Declaration of the area as a EPZA Freeport Zone after completion of Master Plan

On going

3.

Short listing companies

4.

Determining lease price

5.

Subleasing of Plots qualifying companies

of

qualifying EPZA and TPDC Awaiting declaration to collaborate) TPA in On going consultation with EPZA and TPDC to TPA

Await declaration

Status of earmarked new EPZ and SEZ areas Best practices on EPZ and SEZ programs worldwide have shown that areas earmarked at the inception of these programs were small. Modern EPZ and SEZ programs are growing faster to a form of ‘Satellite Town’ involving industries, services, ports, airports, and residential facilities. Such a model demands substantial space in terms of area. In this regard therefore, on November 2009, during the official inauguration of the BWM Special Economic Zone, The President, His Excellency Jakaya Mrisho Kikwete instructed the Authority to earmark EPZ/SEZ land in every region in Tanzania mainland. These earmarked lands will be surveyed,

40

planned and later developed basic onsite infrastructure like water, electricity and sewage systems as well as roads and data transmission systems. In implementing this directive EPZA up to the end this financial year has earmarked land in all Tanzanian Mainland

regions except for the four

new regions, namely, Geita, Njombe, Katavi and Simiyu. Efforts are underway to collaborate with regional administrations of the above mentioned regions in setting aside land for EPZ/SEZ investment activities. Status for each earmarked land on the Tanzanian Mainland regions is shown on the table below:-

41

Current Status of earmarked land S/N 1.

Region Coast (Bagamoyo) Hectares 9081

Current Status      

2.

Tanga (Neema) Hectares 1363

   

3.

Mtwara (Mtwara municipal) Hectares 2600 Arusha (Malula – Arumeru) Hectares 1600



Mwanza (Nyahomango/U sagara) Hectares 3500 Kigoma (Kigoma/Ujiji) Hectares 3000

      

4.

5.

6.

7.

8.

      Ruvuma  (Luwawasi/Mku  zo) Hactres  2033  Mara (Tairo –  Bunda)  Hectares 1360   

 9.

Mbeya (Sistila – 

Area demarcated Satellite photos taken Valuation done Feasibility Study accomplished since February 2010 Master Plan in progress, to be accomplished by end September 2012 Compensation to be paid next financial year 2012/2013 Area demarcated Valuation done Feasibility Study and Master Plan not yet done Compensation not done Area demarcated and owned by Tanzania Ports Authority Feasibility Study and Master Plan not yet done Area demarcated Survey done Valuation not done Feasibility study and Master Plan not yet done Compensation not yet done Area demarcated Valuation done Feasibility Study and Master plan not yet done Compensation not yet done Area demarcated Valuation done Partially compensated by 50 % Feasibility study and Master Plan not yet done Outstanding compensation of 1.1 billion not done Area demarcated Survey and Valuation done Feasibility Plan and Master Plan not yet done Compensation not yet done Area demarcated Feasibility Study and valuation done Master Plan for the first phase of 600 hectares accomplished Cadastral survey for the 600 hactres in progress Area demarcated

42

S/N

10.

11.

12.

13.

14. 15.

16.

17.

18.

19. 20.

Region MbeyaMunicipal ) Hectares 500 Manyara (Mererani – Simanjiro) Hectares 530.87 Kilimanjaro (Hai) Hectares 463 Kagera (Karagwe) Hectares 2600 Morogoro (kiyegeya) Hectares 2000 Lindi (LindiMjini) Hectares 100 Shinyanga (Kahama) Hectares 1040

Current Status     

Survey in progress. Valuation not yet done Feasibility study and Master Plan not yet done Procedures for Title Deed are in progress Feasibility study and Master plan note yet done

          

Area demarcated Survey and Valuation not yet done Feasibility study and Master plan not yet done Area demarcated Survey done Feasibility study and master plan not yet done Area demarcated Survey done Valuation in progress. Feasibility study and Master plan not yet done Land earmarked found to be too small, regional administration requested to look for addition land. Area demarcated Survey in progress Valuation in progress Feasibility study and Master plan not yet done Area demarcated Survey in progress Valuation not yet done Feasibility study and Master plan not yet done Area demarcated Survey not done Valuation not done Feasibility study and Master plan not yet done Area demarcated Survey not done

    Singida  (Manyoni)  2000 Ha   Iringa (Viwengi/  Lugalo – kilolo)  Hectares 280   (Ndolezi –  Mufindi )  Hectares 1200 Rukwa (Malonje  – Sumbawanga  Hectares 235  Tabora Ha1995 NzegaNdogo Dodoma Msalato,500 Ha

Area demarcated Survey not done Area too small, regional administration requested to look for additional land

 

Area demarcated Survey not done

 

Area demarcated Survey not done

43

Chapter 4 Contribution of EPZ program to the Economy 4.0

Economic Impact of EPZ program to the Tanzania Economy Since its inception, EPZ contribution to the national economy has been rising steadily despite various adverse economic dynamics. As of the end of June 2012, the cumulative contribution of EPZ to the Tanzanian economy has been more significant. Additional inputs with merits are expected with the coming into effect of the SEZ Act 2006 in the next financial year. Summary of Economic impact of EPZ since 2007 (Cumulative) Year

Total

invested Total

capital

in

million

export Total

US$ revenue US$ million

in employment created

June 2012

792.2

440.2

16,105

June 2011

650

357

13,500

June 2010

560

300

10,000

June 2009

212

118

7,500

June 2008

140

43

3,900

June 2007

88

28

2,010

44

Trend of Capital Invested and export revenue on EPZ projects since 2007 US$ million 800 700 600 500 400

Capital 300

Export

200 100 0 2007

2008

2009

2010

2011

Years

2012

Employment trend created by EPZ projects since 2007 18000No. of jobs created 16000

14000 12000

10000 Employment2

8000 6000 4000 2000

0 2007

2008

2009

2010

2011

45

2012

Years

As at the end of June 2012, EPZA cumulative figure of registered and operational companies stood at 65 companies. Out of this, 58 are enterprises and 7 companies are developers. Sector based analysis of the 58 EPZ Enterprises is as shown on the table below; S/n

Number

of

EPZ

Sector

Percentage

Enterprises

%

1.

23

Agro processing

40

2.

11

Textiles

19

3.

7

Mineral Processing

12

4.

17

Light

assembly

&

29

engineering 58

100

From the above statistics, it is observed that 40 % of the EPZ Enterprises are engaged in Agro processing projects. This is a good opportunity for investors to focus given the abundance of raw materials Tanzania is endowed with. This performance is in line with emphasize by the government of Tanzania in value additional to agriculture commodities for export. It is a good opportunity for investors to invest on sectors which the government at policy level has a special attention on the basis of priority. The second sector which marked a significant percentage in registration is the light assembly and engineering sector. The strategic location of Tanzania is an advantage for light assembly factories which can use this location as a hub of regional and international distribution of their final products. The textile industry though still competitive has not marked a significant percentage of registration. Efforts are under way to promote this sector as well as the mineral processing sector.

46

Summary of EPZ operator companies by sector

EPZ Enterprises by sector

Assembly&Engineer ing 29%

Agro Processing 40%

Mineral Processing 12%

Textile 19%

Source: EPZA statistics as at the end of June 2012 For the case of country of origin, statistics as at the end of June 2012 stood at 46 % for foreign registered companies which amount to 27 foreign registered companies. Companies which were registered on JV (Joint Venture) partnership between Tanzania and any foreign country were 8 which are 14% of the total EPZ Enterprises. Projects registered by Tanzanians were 23 which is 40% of the total registered companies. This is a significant percent considering that other Tanzanians had their projects registered in partnership with foreigners. Therefore the response of Tanzanian investors to the EPZ program is positive as opposed to the public perception that the program favors foreigners than native.

47

EPZ Enterprises by country of origin

Tanzania 40%

Foreign 46%

Joint Venture 14%

Source: EPZA statistics as at the end of June 2012

48

Chapter 5

EPZA priorities for the financial year 2012/2013 5.0

Budget for the financial year 2012/2013 EPZA’s budget for the financial year 2012/2013 has considered four (4) sources of income. These are Government subvention, borrowing, Donor funding and internally generated funds. EPZA requested from the Government a total of Tshs. 111,311,273,340; plans to borrow from financial institutions Tshs 40,864,882,500; plans to receive Donor assistance of Tshs 1,117,365,300 and to collect from internal sources Tshs 300,000,000. EPZA management has prepared two different scenarios of budget projections; the EPZA projections budget which shows the actual budget required and the budget as per ceiling issued by the government. The EPZA projections stand at Tshs 153,593,520,640 whereas, the budget as per Government ceiling is Tshs 111,311,273,340. All activities listed under the EPZA projections’ budget are crucial for implementation in the coming year; however, due to shortage of funds, they will have to be rescheduled or await alternative sources of funding.

49

EPZA projection Vs. Government ceiling budget 2012/2013

Narrations

2012/2013

2012/2013

EPZA projections

Budget

as

Variance per

Government ceiling Mini

Tiger 81,714,662,500

50,000,000,000

Tshs (31,714,662,500

% -39

69,150,220,000

60,000,000,000

(9,150,220,000)

-13

1,291,273,340

1,291,273,340

1,437,364,800

20,000,000

(1,417,364,800)

-99

153,593,520,640

111,311,273,340

(42,282,247,300)

-28

Plan EPZ Development Personal

-

0

Emoluments (PE) Other Charges (OC) Total

The amount of Tshs. 50,000,000,000 allocated for Mini Tiger Plan is mainly for compensation of Bagamoyo, Ruvuma, and Tanga SEZ areas. The amount of Tshs 60,000,000,000 approved by the government budget ceiling in the EPZ Development budget for the financial year 2012/2013 is meant for compensating land earmarked for developing the TanzaniaChina Logistics Centre at Kurasini, Dar es Salaam. The project will be a Joint Venture between the governments of Tanzania and China. The OC budget allocated by the Government to EPZA is too small. The Authority requested for Tshs 1.4 billion; however, only Tshs 20million has been

50

allocated. The allocated amount is not enough to sustain the Authority even for one month. Development of EPZ/SEZ sites requires substantial financial resources. Practically there are three ways in which EPZ/SEZ sites can be developed. EPZ and SEZ sites can be developed by using Government funds; involving the private sector; and or through the combination of the two, that is, Public Private Partnership (PPP). EPZA’s plan is to develop the zones using the private sector and through PPP. The government will pay compensation to all SEZ/EPZ earmarked areas to enable EPZA acquire the land and use the same land as equity in Joint Venture

arrangements.

However,

the

government

will

continue

developing offsite infrastructures (bringing utilities like water, power, gas, data transmission systems closer to the earmarked zones). As explained in the background, funds allocated from Government will be primarily used for land compensation and initial project preparations. The Management is planning to borrow funds from financial institutions to support the initial development of infrastructure at Bagamoyo SEZ. Discussions are already underway between EPZA and a number of international financial institutions for soft loans.

51

The table below provides details of the sources of income for the prioritized budget: EPZA actual budget and income projections for development projects 2012/13 BudgetActual (Tshs 000)

VOTE Mini Tiger Plan EPZ Developme nt Personal Emolume nts (PE) Other Charges (OC) TOTAL

5.1

2012/13 Proposed Source of Income (Tshs ‘000’) Govt. Donor Internally Subvention Borrowing Funded Generated Funds

81,714,662

50,000,000

31,714,662

-

-

69,150,220

60,000,000

9,150,220

-

-

1,291,273

1,291,273

-

-

-

1,437,365

20,000

1,117,365

300,000

153,593,520

111,311,273

1,117,365

300,000

40,864,882

Budget priorities EPZA budget for the financial year 2012/2013 is based on the following five priorities: a) Initial development of Bagamoyo SEZ, which involves undertaking ‘full’ compensation of the Bagamoyo SEZ site, preparation of the Master Plan, undertaking Environmental Impact Assessment of the site and commencement of construction. b) Initial development of Kurasini area earmarked for constructing a Tanzania-China

Logistics

Centre,

which

involves

valuation,

compensation and commencement of construction. c) Initial

development

of

Kigoma

SEZ,

which

involves

full

compensation of the site and preparation of a detailed design of the onsite infrastructure.

52

d) Undertaking full compensation of Ruvuma and Tanga SEZ as well as conducting land surveys, valuation, feasibility studies and master planning for 4 newly earmarked EPZ/SEZ sites. e) Promotion of EPZ and SEZ investment opportunities. In addition to the daily routine tasks of EPZ/SEZ promotion and facilitation, EPZA during the next financial year 2012/2013 will focus on the following; to accomplish earmarking of EPZ and SEZ land on the new four remaining regions in Tanzania Mainland, namely Geita, Njombe, Katavi and Simiyu. The Authority also plans to start the first phase of basic onsite infrastructure development at Bagamoyo SEZ and leasing plots to investors. In additional to this, the Authority shall undertake valuation and later compensate for the earmarked land at Kurasini for the China – Tanzania Logistics Centre project. This exercise will extend to payment for compensation on all areas whose valuation reports have been accomplished and passed by the Chief Government Valuer, namely, Bagamoyo, Mara, Ruvuma, Tanga and Kigoma. The Authority will also undertake detailed design for the development of basic on site infrastructure on Kigoma SEZ and the proposed Mtwara Free port Zone. Equally, the Authority shall undertake feasibility plan and Master Plan for the development of Mtwara SEZ, Tanga SEZ, Ruvuma SEZ and Mara SEZ and prepare EPZA’s five years new Strategic Plan 2013-2018.

53

Chapter 6

Challenges, Way Forward and Conclusion 6.0

Challenges In spite of

the successes of EPZ program in Tanzania in spheres of

diversification, export growth and development, some reservations and concerns have been expressed. Among others are the following;

6.1.1 Budget limitations Since it’s inception, EPZA has been receiving insufficient funds for infrastructure development. In order to match with the international practice of developing infrastructure in large EPZ/SEZ area, EPZA needs substantial financing for such projects. The current approved budget for infrastructure development is too small, and still the allocations are not timely. EPZA Budget VS Actual remittances for financial years 2007/20082011/2012 Financial

EPZA

Approved

Variance

Actual

Variance

Year

Projections

Budget

from

Remittance

from

Projections

approved budget

2007/2008 5.6 bn

1.4 bn

-75 %

1.0 bn

-29 %

2008/2009 16.8 bn

14.6 bn

-13 %

11.2bn

-23 %

2009/2010 14.8 bn

8.4 bn

-43 %

5.2 bn

-38 %

2010/2011 83.8 bn

5.2 bn

-94 %

2.4 bn

-54 %

2011/2012 78.0 bn

4.2 bn

-94.6 %

1.13bn

-73 %

Total Remittance

(5 years)

20.93bn

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6.1.2 Incentive status, a loss to government revenue or a strategy to attract FDIs? Developing countries, Tanzania inclusive, in the past had followed the Import Substitution Industrialization. However this strategy experienced disappointing growth performance. As part of economic reform strategies, Tanzania began to move to the Export Oriented Industrialization (EOI). This strategy required the adoption of a package of industrial incentives to attract foreign investors to produce in the domestic economies for export. One of these policies was the establishment of Export Processing Zones (EPZs) Program. Of recent; different researches have been done and published by various researchers arguing that Tax Incentives are a loss of government revenue. These arguments have attracted debate from intellectual and different stake holders, including politicians who are now looking on a possibility of reviewing or even removing such incentives. Tax incentive programs are mainly fueled by the expectations of welfare gains by means of an increase in the regions’ level of employment and income, but the controversy surrounding its efficiency is far from being cleared up due to the difficulty in determining the effects on the economic system as a whole. On the other hand, supports highlight the positive impacts of the creation of jobs and income, whereas on the other hand, opponents confine attention to the possible costs arising from the loss of tax revenue. However, according to Dr. A. Meru, the Director General of EPZA, it might not be correct to make a general conclusion that tax incentives are draining revenue for essential public services. In real practical sense there are many investment incentives in which without tax incentives, investment or social economic development will be an endless dream. Dr.

55

Meru further argues that researchers who want to make a correct and professional analysis on whether or not tax incentives drain government revenues would go deep into the benefits ought by tax exempted project vis a-vis the relief in tax offered into the projects. It will be absolutely wrong and non professional to just compute the amount of tax exempted and jump to conclusion without measuring the impact of the project in terms

of

revenue

generated,

employment

generated,

technology

transferred, the multiplier effect impacted and other social economic benefits caused by the project. From EPZA’s perspective and experience shared from different countries, including member states of the EAC. Tax Incentives are key in the attraction of FDIs. Be it in Africa, Asia, Europe or anywhere else, tax incentives are there. Countries only differ in which projects the tax incentives are given and the rates of tax incentives. India and Malaysia are middle income countries and have far better infrastructure than ours; they however still offer lucrative tax incentives to investors, including tax holidays. Why should Tanzania be an exception? East Africa has harmonized all EPZ tax incentives. Just imagine a situation where other countries within the regional block offers EPZ tax incentives and Tanzania does not. Will we be competitive? It is important to note that with globalization at hand, all countries are competing for the same markets; competitiveness therefore, is a key factor for success.

6.1.3 Supply of power and water to investors As it has been observed on the economic outlook of the country on this period under review, the cost of production during this financial year 2011/2012 were high. This high cost is further made worse by power and water outages which lead to reduced output and damage to equipment. Insufficient water supply as a result of poor rainfall coupled

56

with

increased

tariff

is

also

a

constraint

to

production

and

competitiveness. 6.2

Way Forward Tanzanian experience in the development of export economies through EPZs is now undergoing changes. One of the major changes has been to permit export zones to develop countrywide. This has been a response to the growing desire of private zones developers and the increasing number of private property development groups. Applications for new zones development are increasingly treated like any large scale property development, subject where applicable to land use planning, zoning, building and environmental requirements. A related development in Tanzania about EPZs has now been the rethinking of the role of zones in economic development. At the beginning of the scheme, setting up of EPZs was intended to promote exports, create jobs and transfer technologies through backward linkages. But the rapid pace of globalization and trade liberalization is stimulating a much broader view in terms of development objectives and performance expectations. Increasingly, zones were viewed as a key mechanism to promote two way trades and facilitate liberalization and modernization of the host economy. The new system emphasis is to integrate Export Processing Zones with the domestic economy, and this will be archived once the SEZ scheme become operational in the financial year 2012/2013 The interaction between foreign and local firms stands to bring about technology transfer, which most developing economies lack, for their future development. As a result EPZs and SEZs will help to stimulate the development of a local/indigenous entrepreneurial base by means of practical learning, sub contracting and formal education. EPZs and SEZs

57

can also benefit the local economy when local firms become suppliers to export firms. Domestic firms can thus develop their capacities to produce quality products, and consequently their international competitiveness. In this way, employment through the creation of new jobs can be enhanced because every EPZ job creates one non EPZ job. 6.2.1 Required support As discussed in this report, argued achievements and asserted challenges depict that it is imperative for the government to ensure that important policies especially those governing tax regime and investment operations are kept stable and consistent. In the event that there is a need to change such policies, this should be implemented after exhaustive

consultation

with

stakeholders

together

with

the

implementing agency so as to retain and preserve credibility of the program. This is important because investors prefer predictability to enable them undertake their operations with high degree of certainty. Frequent policy changes regarding tax incentives and other investment related issues without adequate consultations should be avoided or rather controlled as much as the government can do. Tax incentives are essential to support and promote growth of the private sector and especially in new business and green field investments into the country. By removing the necessary incentives that make investors find Tanzania an attractive investment destination; this will likely reduce investments and capital formation in the economy. Tax and investments reforms have to be done in a systematic and planned manner that sends positive signals to investors. 6.3

Conclusion Despite the Zones underdeveloped infrastructure in Tanzania, a problem which EPZA is addressing through PPP (Public – Private Partnership), Tanzania’s Export Processing Zones have performed much better than anticipated. For example, as of the end of June 2012 , 65 EPZ companies

58

have been registered, compared to the 45 that

had been deemed a

realistic target, and 16,100 direct jobs created rather than the expected 6000 target. Export volume has reached $ 440.2 million earnings out of investment capital of $ 792.2 million. The program has an opportunity to increase its role in development of Tanzanian Economy if there are serious initiatives to address the challenges in additional to the transformation into SEZ program which encompasses more economic activities.

59