Tanzania Textile Industry Development and Investment Potential

 

1. Country Overview

 

Tanzania is located in the east of Africa, south of the equator and east of the Indian Ocean, with a coastline of about 1,400 kilometres, three seaports, namely, Danga, Dar es Salaam and Mtwara, as well as three lake ports, namely, Mwanza, Kela and Kigoma. Among them, the port of Dar es Salaam is the main port of Tanzania and the second largest in East Africa, with an annual throughput of about 14 million tonnes, through which more than 95 per cent of Tanzania's international trade is carried out, while providing services for the import and export trade of neighbouring landlocked countries.

 

The Tan government attaches great importance to domestic infrastructure construction, and is accelerating the Dar es Salaam port reconstruction and expansion project, which will optimise the traffic of goods transported from Dar es Salaam port to the inland areas, and enhance the advantages of Tan's transport location in East Africa. Roads and railways in Tanzania are in a poor state of repair and have poor operational capacity. There are currently four international airports, and from March 2021, Tanzania has launched direct flights from the capital Dar es Salaam to Guangzhou, China.

 

Tanzania is one of the faster growing economies in Africa and one of the most stable economies in the East African region.In 2020, Tanzania achieved a GDP of US$63.2bn, an economic growth rate of 1.03% and a GDP per capita of US$1,090. The African Development Bank forecasts a strong recovery of the Tanzanian economy in 2021, with an expected growth rate of 4.1 per cent and 5.8 per cent in 2022. As of now, public investment is the main driver of Tan's economic growth, including hydroelectric projects and the development of standard gauge railway infrastructure. The Tan government is stepping up reforms and actively taking measures to improve the domestic business environment in order to promote private sector investment.

 

2. Status of the textile industry

 

Scale of the industry

 

The Tanzanian government attaches great importance to the development of the textile and garment industry, and the Tanzanian Ministry of Trade and Industry released the "Cotton to Clothing (C2C) Development Strategic Plan 2016-2021" in 2016, which is known as the blueprint for the development of Tanzania's cotton, textile and garment industry, and aims to strengthen the development of the domestic textile and garment industry, and to reduce dependence on second-hand garment imports. At present, Tanzania's textile and garment industry is still in the primary stage of development, with a weak industrial foundation and an incomplete upstream and downstream industrial chain, and there are only a few textile and garment factories in the country, which are mainly located in Dar es Salaam, Morogoro, Arusha and Mwanza.

 

Cotton is an important cash crop in Tanzania, and according to the US Department of Agriculture, Tanzania will produce 82,000 tonnes of cotton in 2020-2021, of which 70% will be exported, with the main export destinations being Bangladesh, India and Indonesia. Over the past decades, Tanzania's cotton sector has developed slowly, with declining international competitiveness and a widening gap with other major cotton producing countries in the world. There is an urgent need to improve both the production and quality of Tanzanian cotton.

 

International trade

 

According to the Tanzania National Bureau of Statistics, Tanzania's textile and clothing exports in 2018 amounted to US$230 million, mainly to China, Kenya and the United States, among others. Of this, $38.06 million, or 16.7 per cent, was exported to China, while 11.3 per cent and 8.0 per cent were exported to Kenya and the United States, respectively. The main product exported by Tanzania's textile industry is cotton, which accounted for $85.48 million or 37 per cent in 2018. China is also the largest source of textile and clothing imports to Tanzania, which imported $302 million of textile and clothing in 2018, with China accounting for 50 per cent of the total, while India and Pakistan ranked second and third in the list of import source countries, respectively. From the perspective of imported product categories, Tanzania's main textile imports are other textile manufactured products (including home textile products), with an import value of $123 million, accounting for 40.6 per cent.

 

3. Co-operation between China and Tanzania in textile industry

 

China is Tanzania's number one trading partner and number one source of foreign investment, with bilateral trade between China and Tanzania valued at US$4.587 billion in 2020, an increase of 10 per cent year-on-year. China is also an important textile and garment trading partner of Tanzania, according to China Customs statistics, the bilateral trade volume of textile and garment between China and Tanzania in 2020 is $763 million, an increase of 10.6 per cent from 2019. Meanwhile, China is also Tanzania's largest textile and garment export market. In terms of product categories, China's textile exports to Tanzania are mainly knitted garments and accessories, chemical fibre yarns and fabrics. The main products imported by China from Tanzania are raw materials of hemp fibre, with an import value of USD 28.86 million, accounting for 80.9%.

 

4. Trade and investment policies

 

Foreign Trade Policy

 

Tanzania is a member of the WTO and also a member of the East African Community (EAC) and the Southern African Community (SADC). Tanzania has reached agreements with the United States, the European Union and other relevant agreements to open up the market, and products invested and produced in Tanzania can be exported to the U.S. and European Union markets free of tariffs. As a member of the EAC, Tanzania enjoys duty-free trade between member countries, a common external tariff rate (CET) for imports from third countries, and zero tariff on imported raw materials. In addition, Tanzania has a trade agreement with China, which has unilaterally granted Tanzania duty-free import treatment for 97 per cent of its products since 2014.

 

Investment Preferential Policies

 

In terms of tax incentives, the Tanzanian government has stipulated that wholly foreign-owned enterprises or joint ventures with an investment amount of more than USD 300,000 can apply for an "Investment Incentive Certificate" from the Tanzania Investment Centre (TIC) and enjoy the following tax incentives: import tariff refund for raw materials used in the production of exported and certified exported goods; no value-added tax (VAT) on exported goods. No VAT on exported goods; exemption from income tax until the company's profits are offset against the capital investment; 100% return of capital for foreign enterprises; free repatriation of dividends and bonuses received by foreign shareholders; access to other permits, such as residency permits, work permits, etc.; access to jobs for 5 foreigners per enterprise for projects that have an Investment Preferential Certificate; and more.

 

Foreign Exchange Control

 

Although Tanzania has foreign exchange control, the policy is relatively lenient, and foreign exchange under the current account has been freely convertible. For investment projects, the Tanzanian government guarantees unconditional and free exchange of currency and remittance of the following items through approved commercial banks: net profits and dividends from investments and operations, expenses incurred in obtaining foreign loans, royalties and fees incurred in technology transfer agreements registered under the Investment Act, remittances from the sale or liquidation of the operating enterprise (net income excluding all taxes and other debts) or interest earned on the investment. interest earned, etc.

 

5. Summary and Recommendations

 

(1) The textile and garment industry is one of Tanzania's priority industries, and the Tanzanian government has provided a number of favourable support measures for overseas invested enterprises through the establishment of the Textile and Garment Export Processing Zone (TGEPZ).

 

(2) Tanzania's textile and garment industry is in the primary stage of development, with a weak industrial foundation and an incomplete industrial chain. Cotton production is mainly used for export, the domestic textile industry with very limited cotton, there is an urgent need to enhance the added value of cotton products, to change the situation of low economic benefits of direct export of raw cotton, in addition, the production and quality of cotton needs to be improved, the cotton industry upstream and downstream co-operation with a certain space.

 

(3) Tanzania is one of the main beneficiaries of the U.S. African Growth and Opportunity Act (AGOA), and its textile and garment exports to the U.S. market enjoy tariff-free concessions, which creates convenient conditions for the development of an export-oriented economy.

 

(4) Tanzania's infrastructure is backward, with high transport costs and insufficient supply of electricity and other energy sources. At the same time, there is uncertainty in the investment policy, and the implementation of preferential policies cannot be put in place in time, which affects the confidence of investing enterprises, and the business environment needs to be improved and upgraded.