Why Foreign Investors Hesitate to Invest in Tanzania (And What We Can Do About It)?

Tanzania is a country filled with potential. It’s rich in natural resources, has a growing economy, and sits in a prime location in East Africa. From agriculture to mining to tourism, the opportunities seem endless. But despite all this promise, many foreign investors are hesitant to dive in.

So,what’s holding them back? Let’s break it down.

1. Red Tape and Bureaucracy

One of the biggest frustrations for foreign investors is navigating the complex web of paperwork and regulations.

• Long approval times: Investors sometimes wait months to get the necessary permits and licenses to start a business. Time is money, and these delays can make Tanzania a tough sell.

• Confusing regulations: Foreign investors often struggle to understand the legal framework, whether it’s about tax compliance, environmental laws, or employment rules. When the rules aren’t clear, it creates uncertainty.

• Corruption and inefficiency: In some cases, dealing with government offices can be slow, with some needing to "speed things up" in less-than-transparent ways.

If Tanzania can streamline these processes and create a more transparent system, we’d see more investors coming in and bringing their capital with them.

2. Currency and Financial Roadblocks

Money matters. And for investors, the financial landscape in Tanzania can be challenging.

• Currency instability: The Tanzanian shilling can fluctuate quite a bit, making it tough for investors to predict their returns. It’s hard to plan when you’re unsure what the exchange rate will do next.

• Foreign exchange controls: There are limits on how easily foreign investors can convert Tanzanian shillings into their home currency or move their profits out of the country. This can be a dealbreaker for those looking for flexibility with their capital.

By easing some of these controls and stabilizing the currency, Tanzania could attract more businesses ready to take the plunge.

3. Land Ownership Restrictions

Tanzania’s land laws make it tough for foreigners to truly put down roots.

• Leasing only: Foreign investors can’t own land in Tanzania—they can only lease it. This creates a lot of uncertainty, especially for those who need large amounts of land for agriculture, real estate, or manufacturing.

Offering more secure, long-term solutions for land use could help bring in investors looking for a stable place to grow.

4. Tax Concerns

No one loves taxes, but unpredictable taxes are especially tough for investors.

• Tax uncertainty: Sudden changes in tax laws or inconsistent enforcement can create big risks for foreign companies. If you don’t know how much you’ll owe next year, it’s hard to plan ahead.

• Incentives (or lack thereof): Other countries in East Africa, like Kenya and Rwanda, often offer better incentives to foreign investors. If Tanzania wants to compete, it needs to sweeten the deal.

By providing clearer tax policies and offering incentives, Tanzania could become a more attractive option for investors looking at the region.

5. Political and Economic Stability

While Tanzania has enjoyed relative political peace, there’s still a sense of uncertainty among foreign investors.

• Policy shifts: Investors are wary of sudden changes in government policies that could affect their operations. Whether it’s tax laws, land use, or foreign ownership rules, policy shifts can create instability.

• Slow reforms: Compared to neighbors like Kenya and Rwanda, Tanzania’s business-friendly reforms have been slower to roll out, making it less competitive in the eyes of investors.

Faster, more consistent reforms would give investors the confidence they need to commit to long-term projects.

6. Infrastructure Challenges

The backbone of any business is infrastructure. Unfortunately, Tanzania still has a long way to go in this area.

• Electricity and transport: Power outages and poor road networks can severely slow down business operations. For companies that rely on logistics and transportation, these inefficiencies can be a major barrier.

• Logistics costs: Moving goods within Tanzania and beyond can be expensive and time-consuming. The lack of reliable infrastructure drives up costs, making it harder for businesses to be competitive.

Investing in better infrastructure—roads, power, ICT—will be key to unlocking Tanzania’s full potential as a business destination.

7. Labor Market and Skills

The workforce is another challenge for investors in Tanzania.

• Skills gap: While there’s no shortage of hardworking people, finding specialized talent in industries like technology or finance can be tough. This forces companies to bring in expatriates, which adds extra costs and complications.

• Labor laws: Tanzania’s labor laws can be rigid, making it difficult for businesses to manage hiring, contracts, and staff turnover.

Improving vocational training and creating more flexible labor policies could help attract companies looking for skilled, local talent.

8. Cultural and Market Knowledge

Understanding the local market is critical for success, but it’s not always easy for foreign companies.

• Cultural differences: Doing business in Tanzania requires understanding local customs and building strong relationships. For foreigners unfamiliar with the culture, this can be a steep learning curve.

• Market challenges: Knowing what consumers want, how to distribute products, and who your competitors are is key. Foreign investors often struggle with this when entering a new market like Tanzania.

Working with local partners and getting guidance from experts on the ground can help, but this takes time and effort.

How Can We Attract More Foreign Investment?

Tanzania has taken steps to improve its business environment, but there’s still more to do. The government is working on simplifying registration processes, offering tax incentives in key sectors, and improving infrastructure. But more can be done.

If Tanzania can:

• Streamline bureaucracy and make regulations more transparent,

• Stabilize the currency and ease foreign exchange controls,

• Reform land laws to give more security to investors,

• Provide clear, consistent tax policies and competitive incentives,

• Invest in infrastructure and skills development,

It could open the floodgates to foreign investment, bringing in the capital and expertise needed to transform the economy.

Conclusion

Tanzania is full of untapped potential, and there’s no shortage of opportunities for foreign investors willing to navigate the challenges. With the right reforms, the country could become one of Africa’s top destinations for international capital. For those ready to make the leap, the rewards could be significant—both for the investors and for Tanzania itself.

Let’s create a future where Tanzania’s promise turns into prosperity. Venture Bridge we are here to help you invest in Tanzania and Africa at large.