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Tanzania: A Uniquely attractive investment prospect

With a large and growing domestic population, strategic location and abundance of natural resources, Tanzania paints an attractive picture for investors.

March 2015

The largest country in East Africa, Tanzania is home to the world famous Mount Kilimanjaro, the Great Lakes, Serengeti National Park and the islands of Pemba and Zanzibar. But the country is not only renowned for its picturesque landscapes – it is a rapidly growing emerging market and is currently ranked among the 20th fastest growing economies in the world.

With a steady FDI inflow and an average GDP growth of around 7% for the past five years, Tanzania is predicted by the International Monetary Fund (IMF) and World Bank to continue this growth for the next decade.

Now, with the recent discovery of large quantities of natural gas, the country has piqued the interest of international investors, which, according to the Tanzania Investment Centre (TIC), can be seen as a positive sign of advancement in the economy.

REAL ESTATE SNAPSHOT

According to the United Nations Conference on Trade and Development (UNCTAD), Tanzania has been named the most attractive location in East Africa for investors.

“The Tanzanian government has worked to ease administrative processes in order to attain more direct investments, and this has clearly paid off. In terms of the property market, Tanzania’s recent economic growth has positive implications for real estate,” says Mustafa Suleimanji, Managing Director of Lamudi Tanzania, an online real estate platform.

“Much of the current demand comes from commercial property. Tanzania’s property market is primarily made up of office buildings, as the bulk of the country’s residential properties are government-owned. Other indicators also point to a bright future for the country’s property market, such as the growing, young population and the pace of urbanisation in many cities. All of these factors create the most attractive environment in East Africa for real estate investors,” says Suleimanji.

According to a recent report by Lamudi the majority of Tanzania’s population is below the age of 14 (44.6%). The next significant age group is between the ages of 25 and 54 (29.5%), followed by those between the ages of 15 and 24, making up 19.5% of the population.

“As with many African countries, this indicates that there is a large young demographic, carrying the economic burden and enabling the economy to grow to its fullest potential. The focus remains on family life, posing great opportunities for the development of the real estate market. As the younger population graduates from university and joins the workforce, the demand for residential, family homes will increase, thereby pushing for more growth in the property sector,” says the report.

TIC agrees. The government organisation foresees half of Tanzania’s 45 million plus population move to urban centres in the next 20 years.

“Accommodation in Dar es Salaam and other cosmopolitan areas is in acute shortage due to, among other reasons, the rapid growth of economic projects, which have attracted huge population (both international and local) with the need for residential,” says TIC.

The burgeoning population is creating opportunities within the commercial, retail and office sector.

MARKET DRIVERS

According to Suleimanji, Tanzania’s stable political and economic environment creates an attractive environment for real estate developers. Recent regulatory reforms and law changes are also having a positive impact on the market.

The recent discovery of natural gas reserves in Tanzania have led to the development of a cross-country pipeline to harvest the resource and has attracted positive attention from both national and international developers, according to Lamudi.

The USD 1.2 billion gas pipeline, from Mtwara region through Dar es Salaam (532 km) will bring employment and growth opportunities not just to the capital.

“We found that the construction of the pipeline will provide a significant boost to the real estate sector. This because the development is likely to attract more foreign and local business, leading to increased demand for industrial, commercial, and residential real estate,” says Suleimanji.

CURRENT AND FUTURE DEVELOPMENTS

Tanzania has a mixture of both government backed projects and private initiatives.

Suleimanji notes that the National Social Security Fund (NSSF) is focusing on office and residential developments nationwide. Some of the developments include DEGE Eco Village in the Kigamboni area, a ferry ride away from Dar es Salaam. The luxury residential complex is a first for the country.

In addition, the construction of a Chinese-funded port and special economic zone in Tanzania worth at least USD 10 billion will start in July this year. The initiative aims to build a huge port at Bagamoyo, 75 km north of commercial capital Dar es Salaam, the site of the country’s main port.

INVESTMENT OPPORTUNITIES

“Our pick for the country’s top investment location is Mwanza, a fast-growing region on the southern shore of Lake Victoria. With a booming population and steps taken to improve the standard of living in the area in recent years, there are abundant investment opportunities,” says Suleimanji.

A high demand for residential accommodation has emerged as the population has grown and the local economy has boomed. Plenty of opportunities also exist here for those looking to invest in industrial or commercial property. The Mwanza region is rich in quality raw materials and its fast-growing manufacturing and mining base provides opportunities for investment.

According to Lamudi, FDI levels remain an important economic indicator for developing countries. In the past ten years, Tanzania has been able to attract a steady level of foreign investment, ranging between USD 1 billion to 1.9 billion. “The most recent World Investment Report (2013) published by the UN, indicated that Tanzania’s inflow of FDI grew by 38.8% between 2011 and 2012. This significant growth confirms foreign confidence in the Tanzanian economy and for the first time outperforms FDI inflows towards the developed world,” says the report.

In addition, increased inward FDI is driving improvements in local infrastructure, further benefitting the economy.

According to TIC tax incentives are now granted in the form of enhanced capital deduction and allowances to investors in sectors including, tourism, mining, agriculture, oil and gas.

TOURISM

Over 40% of Tanzania’s land area is covered with game reserves and national parks. According to TIC, the tourist industry currently supports 27,000 jobs and generates 25% of Tanzania’s foreign exchange. In 2011 Tanzania received over 800,000 tourists.

“The development of Tanzania as a multi-centre tourism destination offers considerable potential growth prospect and provides ideal opportunities for investment. New accommodation, entertainment facilities, lodges and guesthouses of international standards are needed in Tanzania,” says TIC.

There are 174 registered and licensed tourist class hotels offering 11,568 rooms in Tanzania. Dar es Salaam leads in accommodation facility investments.

The tourist city of Arusha has been developed with 91 hotel investments, including the leading hotel chains and the Kilimanjaro region has been developed with 38 luxury hotels and lodges.

“The rest of Tanzania, excluding Zanzibar, remains with little or negligible hotel investments. Investment is required for additional hotel capacity in existing tourist locations and new investment in untapped areas,” says TIC.

CHALLENGES

Suleimanji says the primary challenge moving forward for Tanzania’s real estate industry is how to address the country’s housing deficit. This is estimated at three million units, with the shortfall growing at a rate of 200,000 units per year.

“Creating more affordable housing for low-income people and encouraging public-private partnerships to tackle the housing shortage will be crucial over the coming years,” he says.