The role of economic diplomacy in attracting foreign direct investment (FDI) and its impacts in industrial development in Tanzania

Abstract

The study examined the role of economic diplomacy in attracting Foreign Direct Investment (FDI) and its impacts in industrial development in Tanzania. The study was guided by the economic internationalization theory. The study used descriptive and case study designs. Mixed research approach was applied in this study so as to collect both numerical and narrative data. Purposive sampling technique was applied and data were collected using closed ended questionnaires and interviews. Descriptive statistics and multiple linear regressions were used to analyze quantitative data while qualitative data were analyzed through content analysis. Findings about the effectiveness of the Tanzania’s Foreign Policy indicated that the Tanzania’s foreign policy is effective as it has a power of lobbying, negotiations, advocacy, bargaining and the power of creating conducive environment for investors. For instance, the total value of foreign investments in Tanzania in the period March-November 2021 reached USD 4.144 billion. This is 300% more than the USD 1.013 billion in FDIs in 2020. Findings about the roles of Tanzania Embassies in attracting FDI revealed that embassies are key players in attracting FDI through promotion of trade, promotion of tourism, search for appropriate and affordable technology, maintaining good relationship with other countries and promoting economic interests of a country. This has accelerated the import and export and import. For instance, in 2020 Tanzania was the number 75 economy in the world in terms of GDP (current US$), the number 107 in total exports, the number 87 in total imports, the number 171 economy in terms of GDP per capita (current US$). In terms of top exports of Tanzania are Gold ($2.36B), Nuts, ($386M), Copper; ($345M), Precious metal ($343M), and Vegetables, ($208M). Findings about extent to which FDI has enhanced industrial development in areas of technology, job creation, and industrial output and government revenues; indicated that to a higher extent, FDI has enhanced industrial development. The study recommended that the government of Tanzania should review its existing economic diplomacy policies in order to attract more FDIs and enhance industrial development. To attract more FDIs, the government should improve the budget and working environment for Embassies to play their key roles including promotion of trade, promotion of tourism, and search for appropriate as well as affordable technology, maintaining good relationship with other countries and promoting economic interests of a country. The study further recommended that barriers to FDIs should be removed through creating conducive business environment. This should go hand in hand with maintaining peace and security in the country as well as improvement of infrastructure as a key aspect in the attraction of FDIs. Recommendation was made that more awareness should be built among implementers of the foreign policy to avoid bureaucracy and corruption as hindrance of FDIs. Finally, the government should effectively enhance export promotion policies, import substitution strategy of industrialization, and strengthen investment in science and technology to increase Tanzania’s competitive edge in the international market.