FOREIGN DIRECT INVESTMENT IN TOURISM AND ECONOMICDEVELOPMENT IN MOSHI, TANZANIA - Africa Natural Tours ( africanaturaltours.com )
FOREIGN DIRECT
INVESTMENT IN TOURISM AND ECONOMICDEVELOPMENT IN MOSHI, TANZANIA
Africa Natural Tours
: Africa Natural Tours (For
Kilimanjaro, Serengeti and Zanzibar) Tanzania safari company in Moshi
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in: Wildlife safaris, Mountain climbing,
Cultural tourism and Beach holidays in East Africa
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By Godfrey A. Ngaiza
ABSTRACT
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.
1.0 INTRODUCTION
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.
2.0 LITERATURE REVIEW
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.
4.0 FINDINGS, DISCUSSION SUMMARY, CONCLUSION AND RECOMMENDATIONS
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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