Political Repression and FDI Dilemmas: Assessing Tanzania's Impact on East African Investment Landscapes

In the shadow of Tanzania's 2025 general elections, a troubling narrative of political repression and electoral manipulation has emerged, casting a long shadow over the country's investment climate. According to Amnesty International, Tanzanian authorities have intensified crackdowns on opposition leaders, journalists, and civil society groups, creating what the organization terms a "climate of fear." A Bastille Post article also notes that the elections are set to keep the same party in power for decades. This environment, marked by arbitrary arrests and politically motivated charges, has not only stifled democratic discourse but also raised critical questions about the sustainability of foreign direct investment (FDI) in a nation where political legitimacy is increasingly eroded.

The Paradox of Rising FDI Amid Political Uncertainty

Despite these challenges, Tanzania has witnessed a surge in FDI inflows, jumping from USD 1.3–1.6 billion in 2023 to USD 6.56 billion in 2024, according to a TICGL report. This 400% increase, driven by manufacturing and infrastructure projects, appears to contradict the narrative of political instability. However, a closer examination reveals a fragile equilibrium. The government's introduction of reforms-such as the TISEZA Act 2025 and the National Land Policy 2023-has created short-term incentives for investors, including long-term land leases and streamlined permitting processes, as detailed in the TICGL report. Yet, these gains are undermined by persistent issues: 45% electricity access, 20% land dispute rates in rural zones, and bureaucratic delays affecting 15% of projects, also noted in that report.

The paradox lies in the disconnect between headline FDI figures and the underlying risks. As stated by the U.S. Department of State, Tanzania's regulatory environment remains plagued by arbitrary tax enforcement, corruption, and inconsistent policy implementation. For instance, while the Tanzania Investment Centre (TIC) promotes incentives, the Tanzania Revenue Authority (TRA) often fails to honor them. This inconsistency forces investors to adopt a cautious stance, prioritizing short-term gains over long-term commitments.

Equity Risk Premiums and the Cost of Political Repression

The ripple effects of Tanzania's political instability extend beyond its borders, influencing equity risk premiums across East Africa. Transparency International's 2024 Corruption Perceptions Index ranks Tanzania at 41 out of 100, a score that correlates with higher perceived risks for regional investors, as reported by the Bastille Post. In a market where political interference in judicial systems and regulatory opacity are rampant, investors demand a premium to offset uncertainties.

Data from East Africa Reinsurance Company Limited (EARe) illustrates this trend. Operating in a region where Kenya's political volatility skews risk assessments, EARe has shifted assets to high-quality developed market bonds-a strategy reflecting broader investor behavior, according to a Morningstar report. The company's approach underscores a growing preference for hedging against political risks through diversified portfolios, even as Tanzania's FDI figures rise.

Hedging Strategies in a Fragmented Landscape

Investors navigating East Africa's political quagmire are adopting multifaceted hedging strategies. A report by the African Development Bank highlights infrastructure projects-such as the Tanzania–Burundi–DRC Standard Gauge Railway-as critical tools for mitigating regional instability. These initiatives not only enhance connectivity but also create tangible assets that buffer against political shocks.

Meanwhile, capital is increasingly flowing to neighboring markets like Rwanda and Ethiopia, where stability and business-friendly policies offer safer havens, a trend noted in the TICGL report. For example, Tanzania's revised land policy and plans for an international financial center have attracted interest, but investors remain wary of Zanzibar's autonomy disputes and mainland repression. This fragmentation necessitates a granular approach, with investors segmenting portfolios to isolate high-risk zones while capitalizing on pockets of growth.

Strategic Recommendations for Investors

For portfolios with exposure to East Africa, the implications are clear. First, strategic divestment from sectors heavily reliant on political goodwill-such as mining and land-intensive manufacturing-is prudent. Second, geographic diversification within the region, favoring Rwanda and Ethiopia, can offset Tanzania's uncertainties. Third, engagement with local legal and regulatory experts is essential to navigate bureaucratic inefficiencies and verify incentive applicability, a point emphasized by the U.S. Department of State.

In the long term, investors must advocate for reforms that address Tanzania's systemic issues. The U.S. Commercial Dialogue and Tanzania's Tax and Fiscal Reform Taskforce represent potential avenues for dialogue, as noted by the U.S. Department of State. However, until political repression abates and governance improves, the equity risk premium for East Africa will remain elevated-a cost of doing business in a region where democracy and capital are increasingly at odds.