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

Transcription

1 TABLE OF CONTENTS Director General s Foreword... 3 List of Abbreviations... 4 Chapter One: Tanzanian Economic Outlook Background of the Export Economy in Tanzania Trend in GDP Growth by quarter Trend in GDP Growth by sector Inflation rates Export earnings Chapter Two: Overview of Export Processing Zones Authority (EPZA) Establishment of EPZA EPZA s Organization Structure Export Processing Zones (EPZ) program Special Economic Zones (SEZ) program EPZ and SEZ Incentives Chapter Three: EPZA performance for the year 2011/ Economic Background Overall budget strategy for the year 2011/ Nature and objectives of output and performance Registration of EPZ companies Status of registered companies at BWM SEZ Tanzania China Logistics Centre at Kurasini Bagamoyo Special Economic Zone Mtwara Freeport Zone Status of earmarked EPZ and SEZ areas Chapter 4: Contribution of EPZ program to the Economy Economic Impact of EPZ program to the Tanzania Economy Chapter 5: EPZA priorities for the financial year 2012/

2 5.0 Budget for the financial year 2012/ Budget priorities Chapter 6: Challenges, Way Forward and Conclusion Challenges Way Forward Conclusion

3 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$ 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 3

4 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 and Industry Association VET Vocational Educational Training VAT Value Added Tax WTO World Trade Organization 4

5 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 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 5

6 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 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 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 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 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 6

7 quarter, 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 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 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 Summary of GDP growth rates at market prices by Quarter 2011/2012 Year 1 st 2 nd 3 rd 4 th Remarks Quarter Quarter Quarter Quarter % 7.2% 6.7% 6.7% Power % 6.7% 6.4% 6.5% 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 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 7

8 to 10.2 percent in 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 Graphical illustration of GDP Growth rates by Quarter between and 8

9 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 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 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 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 Industry and construction economic activities grew by 6.9 percent in 2011 compared to 10.2 percent in 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 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 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

10 The growth rate of electricity and gas sub activities was 1.5 percent in 2011 compared to 10.2 percent in 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 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 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 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 This rate of increase in inflation was largely attributed to increased price indices of electricity, water and food. 10

11 Annual Inflation in EAC countries 2010 and 2011 S/n EAC member State December 2010 December Tanzania Kenya Uganda Burundi Rwanda Source: Tanzania Central Bank Website Graphical illustration of headline inflation in EAC countries between 2010 and

12 In 2011, prices for fuel went higher compared to the year 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 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 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$ million by November Export sales of natural products increased by 21.7% equivalent to US$ 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%. 12

13 Export Sales by November 2011 Diamond&other minerals 1% Fish 3% Flowers 1% Re export 2% Other 10% Manufactured goods 20% Gold 50% Tobacco 6% Coffee 4% Cotton 1% cashew 2% Source: Economic survey

14 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 14

15 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 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, 15

16 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 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. 16

17 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 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 17

18 Chapter Three EPZA performance for the year 2011/ 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 18

19 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/

20 Projections, budget and actual collections for financial year 2011/2012 Narrations Mini Tiger 2020 EPZ development Other Charges Personal Emolument Total Government Subventions Internal sources Grand Total Financial Year 2011/2012 ( 12 months) EPZA projections Approved Budget Actual Fund Variance Approved % difference received vs Actual received Tshs 000 Tshs 000 Tshs 000 Tshs ,376,325 4,056, ,000 (3,506,164) -86 1,832, , ,000 (141,000) ,208 50,000 46,584 (3,416) , , ,289 (234,051) ,629,096 4,844, ,873 (3,884,631) , , ,930 22, ,929,096 5,144,504 1,282,803 (3,861,701)

21 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 21

22 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 22

23 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. 23

24 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$ million and projected annual export revenues of US$ 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. 24

25 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 of Percentage company was registered companies % registered 1. Agro processing Mineral processing Engineering Others Textile 3 10 Total

26 EPZA registered companies by sector on FY 2011/2012 EPZA registered compaies by sector 2011/2012 Textile 10% Others 25% Agro Processing 35% Engineering 15% Mineral Procesing 15% 26

27 List of EPZ Standalone factories registered in FY 2011/2012 S/n Name of EPZ registered company Sector Location 1. Power Food Industry Agro processing Kawe, Dar es salaam 2. Prince Ware Ltd Manufacturing of plastic products Pugu Road, Dar es salaam 3. Urafiki Gems Ltd Mineral processing Mererani, Arusha 4. Biabana Company Ltd Printing and Bagamoyo, Coast publishing Region 5. NeelKanth Lime Ltd Limestone Processing Tanga 6. Kohnoor Manufacturing Textile Tabata, Dar es Company Ltd production salaam 7. Solvochem (T) Ltd Petrochemicals Mtwara processing 8. Xing Hua Investment Company Ltd Meat processing Shinyanga 9. Kinshen Import and Export Ltd Assembling of Pugu road, Dar motorcycles es salaam 10. Kamdehemu credits company Ltd Recycling of lead from car batteries Kiwalani, Dar es salaam 11. Aspam Energy Ltd Recycling of used Pugu road, oil Dares salaam 12. Massad Company Ltd Mineral processing Shinyanga 27

28 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 Ministry of Planning, Economic Affairs and Empowerment. The zone is fully developed with basic 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 m 2 and 11,000 m 2. This site was officially inaugurated by The President of the United Republic of Tanzania, HE Dr. Jakaya Mrisho Kikwete in May 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

29 BWM-SEZ Companies July 2011 to June 2012 S/n Name of Company Origin by country Sector 1. Tanzania Tooku Garments Ltd China Textile 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

30 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 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

31 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) 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 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/

32 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 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

33 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 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 d) Master plan is in final stage. Final report to be submitted in September 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 f) EPZA is currently inviting interested developers and financial institutions to collaborate with EPZA in developing SEZ infrastructure. 33

34 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 Authority (EPZA) and the Tanzania Petroleum Development Corporation (TPDC) to find out the possibility of 34

35 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

36 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

37 3.7.1 Proposed 10 Ha Freeport Zone area in Mtwara Port FPZ Phase I FPZ Phase II 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

38 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

39 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

40 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 1. Completion of Master Plan and identification of contractor for development of infrastructure 2. Declaration of the area as a Freeport Zone after completion of Master Plan 3. Short listing of qualifying companies Responsible Institution TPA EPZA EPZA and TPDC to collaborate) Remarks Ongoing/in progress On going Awaiting declaration 4. Determining lease price TPA in consultation with EPZA and TPDC On going 5. Subleasing of Plots to qualifying companies TPA Await declaration 3.8 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

41 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

42 Current Status of earmarked land S/N Region Current Status 1. Coast (Bagamoyo) Hectares Tanga (Neema) Hectares 1363 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 3. Mtwara (Mtwara municipal) Area demarcated and owned by Tanzania Ports Authority Hectares 2600 Feasibility Study and Master Plan not yet done 4. Arusha (Malula Area demarcated Arumeru) Survey done Hectares 1600 Valuation not done Feasibility study and Master Plan not yet done Compensation not yet done 5. Ruvuma Area demarcated (Luwawasi/Mku Valuation done zo) Hactres Feasibility Study and Master plan not yet done 2033 Compensation not yet done 6. Mara (Tairo Area demarcated Bunda) Valuation done Hectares 1360 Partially compensated by 50 % Feasibility study and Master Plan not yet done Outstanding compensation of 1.1 billion not done 7. Mwanza Area demarcated (Nyahomango/U Survey and Valuation done sagara) Feasibility Plan and Master Plan not yet done Hectares 3500 Compensation not yet done 8. Kigoma Area demarcated (Kigoma/Ujiji) Feasibility Study and valuation done Hectares 3000 Master Plan for the first phase of 600 hectares accomplished Cadastral survey for the 600 hactres in progress 9. Mbeya (Sistila Area demarcated 42

43 S/N Region Current Status MbeyaMunicipal ) Hectares Manyara (Mererani Simanjiro) Hectares Kilimanjaro (Hai) Hectares Kagera (Karagwe) Hectares Morogoro (kiyegeya) Hectares Lindi (LindiMjini) Hectares Shinyanga (Kahama) Hectares Singida (Manyoni) 2000 Ha 17. Iringa (Viwengi/ Lugalo kilolo) Hectares 280 (Ndolezi Mufindi ) Hectares Rukwa (Malonje Sumbawanga Hectares 235 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 Area demarcated Survey not done Area too small, regional administration requested to look for additional land 19. Tabora Ha1995 NzegaNdogo 20. Dodoma Msalato,500 Ha Area demarcated Survey not done Area demarcated Survey not done 43

44 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 export Total capital in US$ revenue in employment million US$ million created June ,105 June ,500 June ,000 June ,500 June ,900 June ,010 44

45 Trend of Capital Invested and export revenue on EPZ projects since 2007 US$ million Capital Export Years Employment trend created by EPZ projects since No. of jobs created Employment Years 45

46 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 % Agro processing Textiles Mineral Processing Light assembly & 29 engineering 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

47 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

48 EPZ Enterprises by country of origin Tanzania 40% Foreign 46% Joint Venture 14% Source: EPZA statistics as at the end of June