Foreign direct investment and public policy in Tanzania.

This study set out to identify and analyze policy factors that have affected the flow and effectiveness of FDI in Tanzania from 1961 to 1997. The analysis was done using both quantitative and qualitative analyses based on Dunning's eclectic framework. Quantitative analysis involved an econometric estimation of impact of selected policy variables on FDI inflows. Qualitative analysis was applied on information obtained from questionnaires sent to a sample of foreign investment stakeholders. It was found that corporate tax rates affected FDI inflows negatively while overvalued exchange rates and economic growth encouraged more FDI inflows. The low speed with which the government made its decisions, bureaucracy and corruption were also found to be major obstacles in attracting and operations of FDI ventures. These results imply that efforts to promote economic growth should continue, and corporate tax rates and the exchange rates must be on top of the agenda of any policy related efforts to attract FDI. There is also need to put more efforts into removing bureaucratic constraints and bottlenecks which push up the opportunity cost of investing in the country. Further research is needed on how non-policy factors affect inflows of FDI since these interact with policy factors to make up the foreign investment environment. Resource needs assessment, on the basis of which the type of FDI needed can be identified and policies to guide the same in line with development needs of the country can be formulated, is imperative. Moreover, an improved database for capital inflows and outflows is required to facilitate further research.