Tanzania’s FDI Flood: Real Growth or a Mirage of Offshore Capital?

Foreign capital is pouring into Tanzania at record levels, but the composition of those funds tells a more complex story than the headline suggests.

In the April–June 2025 quarter, Foreign Direct Investment (FDI) accounted for 78.8 percent of all new registered capital, or roughly US$2.54 billion out of a total US$3.22 billion, according to the Tanzania Investment and Special Economic Zones Authority (TISEZA).

At first glance, this surge signals investor confidence in Tanzania’s industrial and regulatory reforms. Yet analysts caution that much of the money is being routed through offshore jurisdictions such as Mauritius and the Cayman Islands, raising questions about ownership structures, tax efficiency, and long-term value retention.

The Scale of the Inflow

Between April and June, TISEZA registered 250 new projects valued at over US$3.22 billion. Of these, US$2.54 billion originated from foreign investors, while domestic investors contributed US$681 million. The foreign share dwarfs local capital by more than 3.7 to 1, a ratio rarely seen in the country’s recent investment history.

The top sources of FDI include China, the United Arab Emirates, Mauritius, India, and the Cayman Islands. While China’s footprint in construction, manufacturing, and energy continues to expand, the rising role of offshore financial centers reflects growing use of investment holding structures — vehicles often designed for tax efficiency or regulatory flexibility.

Economists say the trend can be either a sign of growing sophistication or a potential red flag.

The Nature of the Capital

Unlike earlier waves of FDI tied to extractives or infrastructure, the current quarter’s projects are concentrated in manufacturing, commercial buildings, and agriculture.

These are sectors with tangible output and job creation potential, a welcome shift from speculative investments that dominated in past cycles.

Still, not all the inflows are greenfield. Several high-value mergers and acquisitions were recorded in the same quarter, including one agriculture-sector acquisition worth US$1.65 billion, accounting for nearly half of total investment activity.

That concentration means a single corporate transaction can inflate aggregate FDI figures, masking the underlying flow of new capital formation.

“The data headline looks impressive, but we must ask: how much of this is fresh capital building new capacity, and how much is simply balance-sheet reshuffling?” said an independent economist based in Dar es Salaam.

Risks Beneath the Surface

Tanzania’s policy pivot toward Special Economic Zones (SEZs) and export-led industrialization has made it a regional magnet for large projects. But the influx of offshore funds comes with three main risks:

1. Ownership Opacity:
2. Many projects are routed through offshore holding companies. This structure can obscure ultimate ownership, complicating tax administration and local-content compliance.
3. Profit Repatriation Pressure:
4. If returns are repatriated rather than reinvested, the domestic multiplier effect, jobs, supply chains, and tax revenue, diminishes.
5. Sectoral Volatility:
6. Heavy concentration in a few capital-intensive sectors exposes Tanzania to cyclical downturns. If global commodity or property prices fall, investment momentum could stall quickly.

Government officials argue that TISEZA’s consolidated framework provides new tools for oversight and due diligence. The authority’s One Stop Facilitation Centre (OSFC) now handles investor registration, tax exemptions, and land allocation in one window, while its Premier Investors Service Centre (PISC) vets major projects and monitors performance.

The Policy Context

The creation of TISEZA in 2024 merged the Tanzania Investment Centre (TIC) and the Export Processing Zones Authority (EPZA), centralizing policy control and investor support.

Under its mandate, TISEZA administers fiscal incentives, coordinates land for SEZs, and enforces compliance with local-content rules, including the requirement that foreign projects have at least 30 percent Tanzanian ownership.

The agency’s quarterly report highlights that investor interest is increasingly tied to the SEZ framework, where projects can qualify for corporate tax holidays up to 10 years, import duty and VAT exemptions, and free access to serviced industrial plots.

This design aims to attract large-scale, export-oriented investors, but it also privileges foreign corporates with the liquidity to meet minimum investment thresholds of US$10 million for non-citizens, potentially sidelining domestic SMEs.

Are Tanzanians Being Left Behind?

Local capital participation remains limited. Despite the presence of domestic investors in nearly every sector, their share of total project value sits below 22 percent.

Some economists argue that this imbalance could slow inclusive growth if not addressed through co-investment mechanisms and financial-sector deepening.

“There’s a real risk that we end up industrializing without domestication, foreign capital builds the factories, but Tanzanian firms and workers capture too little of the upside,” said a financial analyst at a Dar-based investment advisory firm.

TISEZA’s leadership counters that new Public–Private Partnership (PPP) frameworks and local-content monitoring units will ensure Tanzanian participation expands as SEZ infrastructure matures.

The Investor View

For global investors, Tanzania’s appeal is clear:

• Macro stability with inflation under control and a growing population base.
• Regional market access through EAC and AfCFTA frameworks.
• Incentive-rich SEZs designed for export manufacturing and agro-processing.

But serious investors are now urged to look beyond the incentives. The critical questions are:

• Who ultimately controls the capital being registered?
• How long is it committed for?
• And how much stays within Tanzania once projects start producing revenue?

Answering these questions will determine whether the FDI flood becomes a sustainable tide or an accounting illusion.

Outlook

Tanzania’s ability to convert inflows into real economic growth will depend on transparency, value addition, and linkages to the domestic economy.

If reforms under TISEZA continue to simplify regulation while tightening disclosure, the country could consolidate its reputation as East Africa’s emerging investment destination.

But the coming quarters will test the model. Capital alone doesn’t build an economy, accountability does.