how does sectoral fdi enhance export earnings? the tanzania experiences

How Does Sectoral FDI Enhance Export Earnings? The Tanzania

Experiences

Charles Domician

Secretary–General: Tanzania Trade Experts’ Association (TRADEXA) &

Assistant Lecturer–University of Dar es Salaam (UDSM)+255784334960; [email protected]; [email protected]

(Presented at UNCTAD’s Kampala Workshop on IIAs: 9-14Nov2008)

04/19/23 1Domician, Charles: FDI & Export Earnings

Background & research questions• A boom in FDI followed Tanzania’s economic

liberalisation of the 1990s• FDI used to fill gap in BoP equation; especially

due to low domestic investment, rising import bill and inadequate export earnings (forex)

• More FDI recorded in mining and manufacturing; and less in agriculture

• Basing on the preceding, it is important to study the influence FDI has had on the country’s export earnings; and its economic impact in terms of backward and forward sectoral linkages

04/19/23 Domician, Charles: FDI & Export Earnings 2

Research methodology

• Application of econometric estimation techniques (OLS & ECM)

• A good measure of long term relationships and impact among economic variables

• Data involved: 1976 to 2007; not well structured/organised/reported for period prior to 1987.

• Tedious exercise of putting together pieces of related data and corresponding periods


Research findingsVariable Coefficient Findings/comments

LN(FDIAGR)(t) 0.01724 FDI enhances Agro export earnings; yet the sector

receives less than proportionate share relative to its

economic significanceLN(FDIAGR)(t-1) 0.10316

LN(FDIMIN)(t-1)0.58126

FDI strongly enhances mineral export earnings;

largely semi processed; inadequate sectoral

economic linkages & contribution

LN(FDIMAN)(t-1) -0.32177 FDI erodes export earnings in manufacturing sector.

Due to privatised but abandoned facilities/factories?

LN(FDITOU) )(t-1) 0.14112 FDI enhances tourism earnings; yet small share in

local economy

Adjusted R-squared: 0.57681; Akaike info criterion: -2.023112; Schwartz criterion: -0.697831; F-statistic:

6.25644; Prob (F-statistic): 0.00011; Durbin-Watson (D-W) stat: 1.895404/19/23 Domician, Charles: FDI & Export Earnings 4

Research findings (2)

• FDI stock leads to mixed export results depending on sectoral capital intensiveness (in mining vs tourism), investment adequacy and targeting (e.g. in agriculture & manufacturing)

• Mining and tourism with highest export earnings, yet the least in GDP contribution, hence coined “Vehicles for Export Earnings Flight–(VEEF)”.

• Manufacturing is second to mining in FDI stock (2007), yet it ranks lowest with agriculture in terms of export earnings


Policy implications• FDI can enhance host country’s export earnings, but it

may do so in unfavourable pattern to local economy• Particularly, the Tanzanian case can partly be explained

by the existing loose investment policy that allows full repatriation abroad of foreign investors’ locally accumulated capital and earnings.

• Tanzania’s investment policy should therefore be reviewed to enable building of a competitive and sustainable value-added export sector with elements of joint domestic and foreign venture ownership, hence the transfer of capital and diffusion of key skills, knowledge and technology to indigenous sectoral producers, processors and exporters.


how does sectoral fdi enhance export earnings? the tanzania experiences

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