Africa Natural Tours
: Africa Natural Tours (For Kilimanjaro, Serengeti and Zanzibar) Tanzania safari company in Moshi
Specialized in:  Wildlife safaris, Mountain climbing, Cultural tourism and Beach holidays in East Africa
Contact +255 653 679 958

By Godfrey A. Ngaiza
(The founder of Africa Natural Tours)

The main objective of this study was to assess the contribution of Tourism Investment on economic development of Tanzania, particularly in tourism sector. In order to examine the overall objectives, the study looked on the following specific objectives; it examined the factors accelerating the inflow of tourism economy, it assessed the prospects of tourism inflows in relative to the economic development of Moshi Municipality and the major challenges facing tourism inflows in tourism economy. The study used the input-output method to assess the impact of tourism investment in Moshi Municipality and inferential statistics to compare investment tourism and economic develop of Moshi Municipality. The study also used descriptive statistics to identify challenges facing the tourism sector in Moshi Municipality. The data of this study were analyzed using appropriate statistical using statistical package for Social Sciences (SPSS). Results of the study indicated that Tourism has a significant impact on income, employment and tax revenues. It also showed that there is a significant relationship between the tourism inflow and the inflow from other economic sectors in Moshi Municipality. Lastly results indicated that there are a number of challenges that must me addresses in order to enhance the tourism industry in Moshi Municipality.


1.1       Background of the Study

After independence, Tanzania followed a socialist system whereby major means of production were owned by the majority (Umma). To date, tourism industry in Tanzania contributes over 17% to the national GDP and is ranked second in foreign exchange earnings after gold. It is estimated that for every tourist arrival in Tanzania, 12 Tanzanians benefit directly and indirectly. Tourism has become the largest foreign exchange earner for Tanzania, exceeding even gold exports, which is the top merchandise export item (UNCTAD, 2008).

In Tanzania, FDI holds the largest share of the foreign private capital flows, which also include foreign portfolio investment and long and short term loans (TIC, 2009). For example, in 2001 FDI stock contributed about 88.6 percent of foreign private capital stock. This shows that FDI is an important foreign investment in the Tanzania’s economy. As regards FDI components, direct equity investment forms an important component of FDI in Tanzania contributing about 78.9 percent of FDI stock in 2001(NBS, 2010). The number of international arrivals in Tanzania has raised from about 612,754 in 2005 to 720,000 tourists in 2007 (World Bank, 2008).

The tourism industry is growing at the rate of 6.2% on average annually since 2005. Tourism employed an estimated 208,000 people in 2008 compared to 189,000 in 2004 and has a potential of being one of the important source of revenue for Tanzania (MNRT, 2009).

1.2       Statement of the Problem

Tourism is one of the world’s largest growing and dynamic economic sectors in many countries. The prospects for continued growth of this sector remain very high. The important rates of growth and development, the volumes of outflow of foreign exchange, infrastructure development, new management techniques and the training experience are affecting different sectors of the economy, which are positively contributing to the economic and social upgrading of a country (WTO, 2010). The tourism industry generates multiple economic and social benefits to the receiving countries and to the tourism-sending countries. In Tanzania, one of the main reasons to sustain and promote tourism is the expected economic and social upgrading.

There are considerable evidence that FDI has great effect on economic development, especially in developing counties, FDI tend to complement domestic investment and facilitating trade and transfer of knowledge and technology (Holger et el, 2010). FDI is particularly important because it is a package of tangible and intangible assets and because firms deploying them are important players in the economy (Ajayi, 2008). Governments began to ease restrictions on FDI and increasingly offer incentives in an effort to attract investment. During the 1990s, FDI soared, growing more than 20% per year. Since there is a link between foreign direct investments (FDI) and economic development in Tanzania. Nevertheless, the contribution of foreign direct investment (FDI) on the economic development, especially on Tourism industry in Tanzania is not clearly demonstrated. It’s for this reason; the study is undertaken examine the role of FDI on economic development, by taking case study of tourism industry in Moshi Municipality.

1.3       Research Objectives

1.3.1    Main Objective

To assess the contribution of Foreign Direct Investment on economic development of Moshi Municipality, particularly in tourism sector.

1.3.2    Specific Objectives

          i.            To examine the impact of tourism investment to the economy of Moshi Municipality.
        ii.            To examine the prospects of tourism investment relative to economic development of Moshi Municipality.
      iii.            To explore on the major challenges facing tourism investment sector to the economy of Moshi Municipality.


2.1 Institutional Analysis Theory

The theory was introduced by Saskia Wilhelms (1998) explores the importance of institutional framework on the flows of FDI. The theory highlights that political stability is the key factor of a healthy institutional framework. According to This theory, FDI is determined more by institutional variables, policies, laws, and their implementation and less by intransigent fundamentals. The four institutions contributing to FDI flows are governments, markets, education and socio-culture (Wilhelms, 1998). This theory have been used by the researcher is because the availability of political stability here in Tanzania appear to be one of the factor which do attract the Foreign Investors.

2.2       Empirical Literature Review

According to UNCTAD (2012), sub-Saharan Africa has historically received the smallest amount of FDI globally. The region accounted for only 5.1% of total world FDI inflows in 2009, compared to 26.0% for Asia and 11.9% for Central and South America. When compared to GDP levels, this figure is less surprising; since the region accounts for just 2.44% of World GDP, it is reasonable to expect that it should have a smaller share of global FDI than other regions. Nevertheless, inward FDI flows as a share of African GDP have increased rapidly over the course of the years, rising from 0.09% in 1980 to 1.84% in 2000, and accelerating even further to 4.22% in 2009.

The study area was Tourists Industry, in Moshi Municipality. The area was purposely selected being Tourist hub of Tanzania and based on its potentialities in attracting more tourists. So it’s a place of considerable significance to world history, both as an entry point for all Tourists arriving Tanzania via Kilimanjaro International Airport and others via Jommo Kenyatta International Airport. The area has a classical tourist hotel `and explorers investment opportunity for traders in East and Central Africa for Tourist destination. Basing on the above description, the area preside potential information pertaining the issues of FDI in tourism industry in relation to its influence on economic development in Moshi Municipality in Tanzania.

A cross sectional survey design is a snapshot of an ongoing situation provides external validity of the results so that the findings can be effectively generalized. It allows the possibility to collect data from a sizeable population using standardized instruments and control over the research process.

Thus, logical reasoning is applied to the research study so that objectivity and precision replace experience and insight as means of investigating a research problem. Since cross sectional survey allows different analytical techniques, this approach was guided by descriptive research a technique which is concerned with either determining the frequency with which something occurs or relationship between variables.

The target population of this study were foreign investors in tourists sector, staff employed or working in tourists industry, community benefiting either directly or indirectly from tourist sector; farming, art or crafts, TRA and NBS office in Moshi Municipality, and the office of Regional Administration in Moshi Municipality. The population from the above mentioned areas was approximated to about 116. Given the population size N = 116, the sample size  was computed using Slovin’s rule given as

Where  is the margin of error. This gives the sample size of 90 at 95% confidence level. Finally data from these 90 datasets was tabulated ready for data analysis.
The researcher   used various methods and techniques of collecting both primary and secondary data during the study. The researcher used interviews, documentary review and questionnaires as methods and techniques of collecting data.

. The first objective being analysis of the impacts of tourism investment on the economy of Moshi Municipality was analyzed using the input-output model described as described by Kweka (2001) as follows:
The input-output model assumes a classification of economic activity in a region, in general, into industrial sectors whose transactions (interindustry transactions) are described by means of a matrix A of technical coefficients. Each element , of the matrix represents the value of output from sector i needed to produce a dollar’s (or any other national currency) worth of output of sector j. Each industrial sector produces the amount of output necessary to meet interindustry demands, as well as final demand caused by household consumption, government spending, investment, and exports. In addition, because of the general equilibrium assumption of the model, the value of output produced by each sector equals the value of output it purchases from other sectors, plus the value of primary inputs such as imports, wages, dividends, profits, taxes, etc. If X is the vector of output of all industrial sectors and Y is the final demand vector, then the basic input-output model is written as:
Solving for  gives
The matrix   is known as the multiplier matrix or the Leontief inverse. Each element of the matrix shows the direct and indirect changes in the output of sector i needed to meet a unit increase in the final demand for the output of sector j. Summing down each column of the Leontief inverse, output multipliers for each sector are obtained showing the direct and indirect changes in sectoral output needed to meet one unit increase in final demand for the output of this sector.
The second objective being analysis of the comparative values on tourism investment inflows was analyzed using analysis of variance (ANOVA) while the third objective was analyzed through descriptive statistics, in terms of means and frequencies.


5.1 Findings

 5.1.1 The Contribution of FDI’s on Tanzania Economy

The study has revealed that employees in Tanzania have a positive mind and attitude towards FDI investment in the economy. The major reason behind it is that more staff from and other local community that were examined are nowadays employed in most investment accrued by FDI’s in Moshi Municipality, their earning usually results in the trickle down effects to the economy at large. Most of local communities that were examined said they earn a living through their salaries and wages that they receive from FDI’s investments. The local community also gets a source of market for their produce; national revenue is also increased by the facilitation of FDI’s investment e.g tourist activities. Findings has also indicated that this investment do contribute great shares in the government budget through its contribution on government revenues. Furthermore the study has revealed the transfer of tourism management skills to the locals of Moshi Municipality which has a vital contribution on strengthening the Tourism Industry in the region which contributes a lot in regional GDP i.e about 20 %.

5.1.2 The Current Employment Structure in FDI’s on Firms

The study shows that almost 10.4 % of the staff working in FDI’s are foreigners while 89.6 % are local staff. Despite the fact that local staff consists of a significant number, tentative analysis has shown that a significant number of these local staffs are employed in less technical position and end being paid normal salary compared to foreigners. The study revealed that most of the FDI’s, especially  in Tourist sector are employed as security guards, messengers, manual jobs e.g. cleaners and cooks. These in terms of percentage almost comprises of 30% of the total employees in the FDI’s investment, which is a greater contribution on income of the Local community in Moshi Municipality. Most of the administrative positions i.e. marketing, sales, training and senior officers and supervisory are mostly done by foreigners. So much more efforts is needed to be put in place to facilitate development and training so as to boost local staff to acquire standard skills and knowledge so as to acquire full potential benefits of FDI’s on tourism to the economy of Moshi Municipality.

5.1.3 Measures that can improve tourism inflow in Moshi Municipality

The study has identified the following measures that can be put in place to enhance FDI investment in Tanzania economy. Some of this measures that were mentioned includes, the improvement of infrastructures such as roads, water and electricity supply, training of local staffs to acquire necessary skills on various employment issues in Tanzania, improving investment policy especially investment, the findings also indicate that more advertisement in international media about the Tanzanian investment environment has to be enhanced. This is not enough since the perception of investors has to follow the government policy, procedures and laws governing business environment. Therefore government intervention has to be streamlined to encourage more stakeholders’ participation and financial service has to be streamlined to facilitate construction and investment Tourism industry on the economy of Moshi Municipality, this will includes an improvement of the existing structures.

5.2 Conclusion

The study has identified that FDI has been very vital in the economic development; it has contributed in employing many local staff and facilitated in a trickle-down effects to the local economy, despite the facts that majority of labour force are employed as security guards, service delivery, operations and sales department, few are employed as managers. It has also contributed significantly in other related income generating activities. Moreover the study focused on assessing; the contribution of employment of local residents in FDIs; hotels, restaurants, diving centres and tour operators on household income, the influence of market chain of local products to the improvement of the quality of life, the income difference between households who directly depend on employment in hotels, restaurants, diving Centers and tour operators and those who are employed in other sectors such as mining, petty traders, manufacturing and small scale farming and final the contribution of local tourism entrepreneurs towards the growth of others economic sectors.
The study has identified the various challenges facing the FDIs on Tourism industry on the economy of Moshi Municipality, some of this factors that were mentioned includes, poor infrastructures, inadequate power supply, poor skills, lack of local familiarity and other as mentioned earlier. Though in response various measures on how to improve the FDI inflow on tourism industry in Moshi Municipality have been identified. .The study has briefly concluded that, there are many contributions of FDI’s on tourism to the economy of Moshi Municipality and income generation activities. Thus the null hypothesis that participation or involvement in FDI’s is positively related to local economic development, specifically on direct employment and other trickle down effects. It is also seen that FDI’s is likely to benefit the local community more than those far away and moreover those sectors with direct linkages to FDI’s investments and hence reduce poverty in the local community.

5.3 Recommendation
This research study has recommended the following measures that need to be implemented in order to facilitate actual benefits of FDI’s on tourism to the economy of Moshi Municipality. The recommendation has focused on three perspectives. They include recommendation to the government, foreign direct investors and the labour force in Tanzania.

5.3.1 Recommendation to the Government
The government has to create an enabling environment for FDI inflows to the country, for instance, improvement in infrastructure has to be addressed with great efforts. The country transportation network is poorly developed, poor electricity services from TANESCO where currently there has been an increasing trend of fire outbreaks and power-rationing, in Moshi Municipality. Early this year, there was huge power rationing which contribute greatly in economic slow-down as most firms did not work to their full potential. This caused reduction of employment as means of emergency financial adjustment. Notwithstanding this, it has contributed to slow pace in the inflow of FDI in this sector of business.

5.3.2 Recommendation to the FDI Investors on Tourism Industry
Direct Investment reflects the aim of obtaining a lasting interest by a resident entity of one economy (direct investor) in an enterprise that is resident in another economy (the direct investment enterprise). In order to facilitate much benefit by Tanzania labour force from FDI’s, the investors has to put strategies that will aim in empowering the local labor force with required skills and knowledge that will enable them to hold senior administrative position within FDI’s in the economy.

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