Countries Should Focus on Domestic Investors to End Poverty and Bring About Real Development

One of the major criteria for measuring the state of prosperity of an economy in a country is what is called the Country's Gross Domestic Product (GDP). Gross Domestic Product is usually defined as 'The monetary value of all the finished goods and services produced within a country's borders in a specific time period'.

Unfortunately, this measure does not consider who actually owns the income involved. In an environment where the investments involved in the production of goods and services come mainly from outside the country, a large part of that income usually go to the foreign investors. The country becomes like a rented farm where the owner gets 'rent for the farm' and perhaps employment for farm labor, while most of the crops or a large part of the crops are taken by the tenant.

A country can have a very high GDP, but in reality, most of that GDP may not be owned by the country itself. Take Tanzania for an example. The country has experienced solid economic growth in recent years, raising hopes that poverty may finally be receding in this East African nation. The country’s GDP growth rate has averaged over 6% annually since 2016, driven mainly by tourism, infrastructure investments and a booming mining sector. A new gold rush which started in the early 2000s has made Tanzania Africa’s third-largest gold producer.

But has this apparent prosperity translated into jobs, opportunities and better living standards for ordinary Tanzanians? The truth is that much of Tanzania’s GDP, especially from mining, primarily benefits foreign investors rather than the country itself. The government only receives a small fraction of profits and value from this “economic growth”.

For example, according to agreements between the Tanzanian government and major gold mine investors, Tanzania only owns 3% of the total value of gold produced in the country. Yet all that gold production—representing billions of dollars in annual revenues—is counted towards Tanzania’s GDP. This paints a misleading picture of Tanzania’s true gains from its abundant natural resources, as most of the gains go foreign companies.

While foreign investment plays an important role, domestic investors—Tanzanian entrepreneurs and businesses—create far greater real value for the country as a whole. When domestic investors earn profits, the wealth remains within Tanzania’s borders circulating within the economy and creating more jobs. In contrast, foreign investors repatriate the bulk of their returns outside the country, providing limited benefits beyond employment for some Tanzanians.

Unfortunately, domestic investors in Tanzania and other developing nations face numerous challenges securing funding to operate and expand their businesses. Banks and financial institutions primarily serve the interests of their shareholders, usually foreign, by choosing to fund projects with highest returns rather than those which benefit the national economy as a whole. As a result, many promising small and medium enterprises struggle to secure support from traditional lenders.

Yet Tanzania has seen impressive growth in business registration in recent years. If the majority of these new companies fail due to lack of funding, the country misses out on the jobs and economic activity they could generate. The Tanzanian government has a responsibility to enable and actively support domestic investors as a matter of national development strategy.

The government collects trillions of shillings in taxes and fees from citizens and businesses every year. But little of these revenues are channelled towards empowering domestic investors through affordable loans, grants and incentives. If the government truly wants to generate inclusive prosperity, making domestic enterprises the central focus of economic policy must be a top priority.

Tanzania could start by establishing a national investment fund specifically aimed at small and medium Tanzanian companies—especially those in manufacturing, agriculture and high-potential sectors. This fund would provide loans, equity investments and technical assistance to help promising domestic firms overcome challenges securing financing from banks. The investment fund could be financed through a mix of government allocations, donor grants and public-private partnerships.

Additionally, the government could offer tax incentives, customs duty waivers and access to industrial land at subsidized rates for qualifying domestic investors. Innovation hubs and business accelerators focused on Tanzanian entrepreneurs should be created and scaled up. The aim of all these policies and initiatives must be to strengthen and grow the army of domestic investors who represent the country’s true wealth creators.

While well-managed foreign investment will remain important, Tanzania cannot escape poverty without making empowering domestic investors the central organizing principle of its economic development. Prosperous nations worldwide became so by first developing their own human and financial resources before opening up to outside investors. Tanzania has an opportunity to pioneer a new development model focused on enabling its citizens to build thriving businesses that generate wealth, jobs and prosperity for all Tanzanians. But seizing this opportunity requires a fundamental shift in thinking—from measuring GDP as an end in itself to fostering an ecosystem that nurtures enterprises owned and operated by Tanzanians for Tanzanians. The time for this shift is now. A new dawn of prosperity awaits, but only if domestic investors rise to lead the way.