NOT JUST HOT AIR

Tanzania 2014 | ECONOMY | FOCUS: FDI

Tanzania is welcoming a record FDI haul over 2013, with natural gas resources offering up tasty prospects for the future.

Tanzania is set to haul in 10% more in FDI in 2013 compared to 2012, in what may just be the tip of the iceberg moving forward as it looks abroad for help utilizing its newfound gas reserves.

The country will have attracted $13 billion in FDI by end-2013, up 10% on the previous year. Africa itself is riding a wave of foreign investment, with flows to the continent growing 5% in 2012, despite the global haul dropping by 18%. In a regional context, Tanzania is one of the stars of East Africa, pulling in 44% of total foreign investment made in the East African Community (EAC) in 2012, just a lick behind Uganda, which pulled in 45%. With prospects for a large natural gas industry simmering, however, Tanzania could soon be enjoying the same attention Uganda has experienced as a result of investment in its oil industry.

The UK was Tanzania's largest source of FDI in 2012, pumping $4.7 billion into the country through firms such as gas company BG Group and brewer SABMiller. The second largest source was India, which invested $1.8 billion, while Kenya invested $1.5 billion, mainly due to the fact that many multinationals base their East Africa operations in the country. Tanzania's fourth largest investor in 2012, China, is new to the top ten, overtaking the US with an investment commitment of $1.4 billion. US firms invested $950 million. Large Chinese projects include a $3 billion deal to develop coal mining and steel projects in partnership with Sichuan Hongda Co., as well as a 500-kilometer gas pipeline from Mtwara to Dar es Salaam.

Tanzania's success in drawing in foreign investors can be attributed to “[its] strong performance [and] the economic reforms that have been implemented," said Juliet Kairuki, CEO of the Tanzania Investment Center (TIC), adding that, “through various economic reforms, the government has also put in place the right legal and regulatory framework that attracts and retains people interested in investing in our country."

In terms of opportunities, the exploration and exploitation of natural gas reserves are the most obvious for the coming periods. Among projects in the pipeline is a Statoil-BG Group plan to develop an onshore LNG plant to the tune of $10 billion. Other companies currently in the field include Ophir, Petrobras, Shell, and ExxonMobil. According to government sources, 17 new wells are to be drilled over the 2013-2014 period at a cost of $680 million. The country's shining gold industry also offers up opportunities, although falling international gold prices may bottom out profits in the medium term as sector players hit a rational output ceiling.

Moving forward, if Tanzania is to improve its investment profile there are certain challenges it will need to confront head on. An unreliable electricity supply is one such concern currently being addressed, with the associated woes set to be eased somewhat as natural gas begins to flow, opening up new avenues for generation. Public-private partnerships (PPPs) also offer up good prospects for potential investors, with opportunities abound in road infrastructure.

KPMG foresees an average 8.9% growth in FDI over the coming two years, with the net inflow to GDP ratio set to remain above 4% for the foreseeable future.