A comparative study of foreign direct investment policy in Eastern Africa: the case of Rwanda and Tanzania (2000-2006)

Abstract

This study's main objective is to explain why while Rwanda and Tanzania both have low FDI potential; Tanzania performs better than Rwanda in attracting FDI. This is done by attempting to establish the contribution of policy in increasing FDI inflow through a comparative analysis of FDI policy in the two countries. In tackling the above-mentioned problem, the study utilizes both primary and secondary sources of data. The findings established that new trends have reinforced the importance of private investment for many developing countries. As a result of the move towards neo-liberal policies, the role of the State has shifted from an active economic player with productive activities to a provider of an environment of doing business and of social risk insurance. The main factors influencing investment decisions in Rwanda and Tanzania were noted to include political risk, economic freedom, business freedom, fiscal incentives, trade freedom, government expenditure, inflation, corruption, property rights, status of financial system and labour regulations. However, the study argues that the FDI national policy framework of a country is a very important determinant of FDI in a country. In this regard, it established that the liberalization of national FDI frameworks in third world countries has been substantially successful in attracting FDIs in those countries but their benefits are debatable. Overall, it was ascertained that the policy orientation of government exhibited that Tanzania had an upper hand in attracting FDI than Rwanda.