Foreign Direct Investment (FDI) is an important source of capital for any developing country that wishes to transform its economy. Tanzania is making concerted efforts to transform its economy through industrialisation, which is a priority of the current government.
An industrialised economy is effective in creating jobs as well as improving exports through manufacturing.
Last year, FDI inflows into Tanzania declined by 15 per cent, a not-so-good sign for the country's industrialisation agenda.
FDI brings new capital for investment, contributes to the balance of payments, boosts the country's capital stock and lays the ground for future economic growth.
There is also evidence that foreign investment can boost exports and integrate local economies into global networks.
At the microeconomic level, there is also a range of benefits, including higher productivity through new investment in physical and human capital, increased employment, enhanced management and transfer of technology.
There are many factors that influence the flow of FDI into a particular country. Some of these factors are external, while others depend on the specific destination.
In Tanzania, the extractive industry is among the biggest recipients of FDI. Investors are holding talks with the government on the framework for commercial terms before they make final investment decisions. It is important that these terms are quickly agreed for the benefit of the economy and the country at large.
Stakeholders cite high interest rates as among the reasons for the decline of FDI last year. While this is normally driven by market forces, policy makers may, however, influence the direction of lending rates. In Tanzania's case, it may be useful to review interest rates to increase FDI inflows.
SBL move commendable
Reports that Serengeti Breweries Limited (SBL) plans to source some of its raw materials locally are heartening.
The Citizen published a story yesterday that SBL will buy up to 16,000 tonnes of raw materials for beer making from locals.
The decision is crucial in many ways. First, it shows that SBL trusts local producers' capacity. Secondly, it is a way of giving back to the community and therefore improving the economic status of the local population.
Thirdly, the investor's impact would be felt in the local economy as not all profits would be sent overseas. The multiplier effects will go a long way towards improving people's livelihoods. Hence, the move is highly commendable.
However, local players must understand that they have a duty to fulfil. Local suppliers must be prepared to deliver accordingly.
The government, through its local authorities, should prepare the producers to not only meet the demand, but also ensure that the raw materials are up to the required standards.
Entrepreneurial education must also be given to the beneficiaries so that the money they get from selling their produce is put to good use.
Lastly, this decision should serve as an example to other investors to use locally-sourced raw material as much as possible for all to benefit.