The impact of foreign direct investment on local enterprises' development in Tanzania

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University of Dar es Salaam
FDI has attracted increasing interest from developing countries because of the perceived benefits in terms of the injection of capital, technology and knowledge. Tanzania has become one of the top FDI destinations in East Africa. Presence of FDI is expected to boost the development of the local enterprises in terms of markets access, capital formation and trade opportunities. However major studies indicate that the key factors affecting Tanzania local firms’ development and performance is the lack of markets, access to capital, technology and poor infrastructure. This contradicting evidence has motivated the researcher to study the impact of FDI on the local enterprise development in Tanzania. This study had three objectives which were to determine the contribution of FDI to local enterprise development with a strong focus on capital formation, technology transfer and market opportunities which are the frequently cited requirements for an enterprise development by most of the literature reviewed. The study also aimed to assess the factors that were limiting FDI in contributing to local enterprise development ad finally the effectiveness of the government policies and strategies on FDI in relation to local enterprise development. The researcher used a survey design which involved ten local enterprises, five joint ventures and five FDI’s in the manufacturing sector to collect appropriate data for the study. The collected data were analyzed using descriptive statistics. The study findings show that there were direct effects of FDI on local enterprises development which included variables like increases in volume of investment by local firms, improvement of production capacity through new technology acquired from existing FDI, improved management expertise on the part of local firms, supply of quality inputs to the local enterprises and an increased market information and access to the local firms. However, these positive effects were reversed by negative effects of the FDI on the local firms like repatriation of interests and profits, competition for supplies and markets and indirectly killing of local infant industries through the excessive incentives the FDI receive in form of Tax incentives and investment incentives. Although the finding in this study report a positive impact of FDI on local enterprises, the extent of the spill over effects from FDI to local firms were limited by a number of factors. Since the spills over effects were achieved through forward and backward linkages, the degree of linkage between FDI and local firms was a critical factor in causing FDI impact on the local firms. It was found that the main reason for the weakness of linkages between FDI and local enterprises was caused by the lack of domestic firms with the capital, technology and expertise required to seize new business opportunities presented by the existing FDI. The FDI in Tanzania were mainly resource and market seeking and that local enterprises had no capacity or technology required to compete with or to benefit from such FDI. From the study findings the researcher concluded that although Tanzania has managed to attract large number of FDI making it one of the best FDI destinations in east Africa, The impact of the attracted FDI to the local firms remain very small. These findings imply that although the government is using a lot of efforts to attract and retain FDI, there are no proper strategies to ensure that relevant FDI that can help our local enterprises are attracted and retained. Similarly the government had no proper strategies to empower the local firms to a level that can make them benefit from the existing FDI.
Available in print form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HG5847.A77)
Investments, Foreign, Manufactures, Tanzania
Assenga, J. P. (2014) The impact of foreign direct investment on local enterprises' development in Tanzania, Master dissertation, University of Dar es Salaam. Dar es Salaam