From Cloves to Real Estate: A Journey of Economic Diversification

For thousands of years Zanzibar had sea hardened sailors, traders, missionaries and explorers from all corners of the world. To some, Zanzibar represented a mystery; to others she was pure exotic and romance, and yet, to those that flocked and continue to come to this paradise island, Zanzibar represents some kind of a dream and a host of opportunities.

But what are the opportunities offered by modern Zanzibar? Does Zanzibar still command her old days’ appeal? This article reminisces the past glory, while focusing on what the future holds for the archipelago.

The Spice Islands-More than a brand Zanzibar has for centuries been synonymous with spices especially cloves, essentially making the name ‘Spice Islands’ a powerful brand associated with Zanzibar. At the peak of the cloves boom in the 1970’s, Zanzibar registered a record production averaging 16,000 metric tons per annum. In recent years, however, various reports commissioned by the Zanzibar State Trading Corporation (ZSTC) and other independent researchers have all pointed out to the sharp decline in production, dropping to as low as 3,000-4,000 tons per annum.

As such, economic diversification became paramount and the Revolutionary Government of Zanzibar (RGoZ) resolved to opening up to tourism, which has become a major contributor to the islands’ GDP.

Economic Diversification

Historically, Zanzibar has heavily relied on trade and export of her highly sought-after cloves and coconuts. And despite the sharp decline in production, cloves export totaled US$43.8M in 2023, which is 26.8% lower compared to US$59.7M in 2022.

The decline in cloves production and the ever-rapidly changing ecosystems of modern economies made it imperative for the government to seek and promote new sources of revenue. Aided by her pristine beaches, evocative history, rich culture, political stability and yes, her hospitable people, Zanzibar has for the past couple of decades seen tremendous growth in the tourism industry.

According to data obtained and published by Dar es salaam based The Citizen, Zanzibar saw an increase of 110.28 percent in the number of in-bound visitors in 2022. In another milestone, the islands surpassed the one-million-mark ceiling, comprising over 500,000 international arrivals, and domestic visitors. In the same year, tourism contribution to the islands’ GDP reached almost 30 percent, up from 16 percent in 2020, and according to Zanzibar Commission for Tourism, the archipelago boasted of 709 hotels and guest houses in 2023 compared to 620 in 2020.

Judging by the many awards Zanzibar has garnered as a top island destination in recent years, it follows that more tourists as well investors will continue to be lured by the Zanzibar magic. As more tourists flock to Zanzibar, one wonders whether there are enough beds to accommodate the guests; and if not, just how many more massive resorts can the islands accommodate? Can real estate developments focused on luxury holiday homes provide a balancing act? Let’s explore.

Investment Climate

Zanzibar has registered an unprecedented increase in foreign direct investment (FDI) during the leadership of President Mwinyi. The Zanzibar Investment Promotion Authority (ZIPA) is reported to have registered almost 300 projects worth a staggering USD 4.5 billion in the past 3 years.

These investments have catapulted the islands’ economy to a steady growth, registering around 7 percent in 2023 and projected to expand further in 2024. According to the Bank of Tanzania this impressive growth has been driven by accommodation and food services, livestock, manufacturing and construction.

But, perhaps, the most significant driver in investor confidence is the openness of and friendly policies rolled out by the government. The promulgation of the Investment Act, 2023 is a testament to Zanzibar’s commitment to ameliorate business environment and further attract both domestic and foreign direct investment.

Hailed as a progressive legislation, the Act provides better clarity in comparison to its predecessor, ZIPPA Act, 2018, and solidifies investor protection under Section 35, which stipulates government guarantee and prohibits expropriation of property. At Section 57, the Act provides that where dispute arises between an investor and ZIPA, an amicable settlement shall be preferred, however, if this approach fails, then a clear mechanism is provided to include:

• procedures governing arbitration in Zanzibar

• rules of procedures of the International Centre for Settlement of Investment Disputes

• signed framework of bilateral or multilateral agreements on investment protection.

The Act, at section 39, further provides a stronger mandate for ZIPA vis-à-vis the management of Special Economic Zones whose stated purpose inter alia, is to provide favorable operating conditions, guarantee availability of land for investment and to expedite transfer of technology and skills while boosting production for export.

In line with these aspirations, the new law has significantly reduced the minimum investment threshold requirement to obtain the strategic investment status.

And finally, the most anticipated ‘golden visas’ are now law and a reality in Zanzibar. Initially envisaged in the Legal Notice No. 64 of 2021, the Real Estate Buyer Incentives are captured under Section 51 of the Act and Schedule Five.

The Promise of Real Estate

The real estate market worldwide will generate a staggering value of US$ 637.80 trn this year. According to statistics residential real estate will dominate the sector, with a projected market volume of US$518.90 trn. Closer to home, Mauritius has capitalized on its allure to attract new investments through real estate schemes.

The residential real estate market in the Island will reach US$14.39 bn this year and an estimated US$16.08 bn by 2028. In addition to its natural beauty, Mauritius offers lucrative incentives such as immediate permanent residency for approved applicants who invest US$375,000 in either designated real estate project or a local business, with a path to citizenship after 5-7 years.

In Zanzibar, the real estate sector is in its affirmative stage, yet all indications point towards a bright future. According to theafricainvestor.com, Zanzibar and Dodoma rank among top ten cities in Africa with the highest rental yields.

The findings ranked Zanzibar 7^th while Dodoma was ranked 9^th. The report observed that Tanzania has benefited from strong leadership and a stable democratic system, which is a requisite for steady economic growth.

Real Estate has attracted a sizeable portion of all new investments in Zanzibar, with an estimated 50 development projects in the pipeline. Existing projects have also reported an impressive performance and growing demand for the ‘slice of paradise’.

For instance, CPS Africa, one of the pioneer developers and the company behind Fumba Town, has sold over 1,500 units, handed over more than 800 to about 60 different nationalities and the project’s investment volume has reached US$ 400 million.

Various studies attribute the increasing demand for residential real estate to Zanzibar’s growing population, natural beauty and the expanding number of tourists.

In fact, a direct link can be established between tourism growth and the demand for luxury holiday homes. It has been reported by developers and real estate agents that the peak tourist season usually comes with a spike in interest and demand for real estate acquisition. It is obvious that these sectors are mutually complimentary in that, tourism is helping drive real estate growth while in return, a thriving holiday homes’ market will help support tourism by accommodating the surging number of tourists.

Another possible benefit for the tourism industry is that increased foreign home ownership will bring Zanzibar many repeat visitors. Subsequently, the owners can be incentivized to visit during low season and rent out in high season in a move to minimize the impact of low season on the economy.

In recognition of the enormous potential real estate presents for Zanzibar, the government has taken necessary measures to create a conducive environment. A Real Estate Directorate has been established under the Ministry of Lands, and the issuance of ‘golden visas’ aka Class C11 residency is a very encouraging development. Under this scheme, a real estate buyer acquiring property worth not less than US$ 100,000 within a ZIPA approved project becomes eligible for residence permit for him/herself, spouse and up to four children under 18.

Towards a Bright Future

There is no doubt these Spice Islands remain as alluring to tourists and investors alike and even the author of this piece, who happens to be an investment consultant can attest to that. I would also say though, that for Zanzibar to maintain this promising trajectory, we cannot afford to be complacent. The government must continue to work collaboratively with all stakeholders to improve:

• certainty and predictability of the legal and regulatory frameworks

• market intelligence and availability accurate information/data to allow potential investors make informed decisions

•  digital transformation supported by mindset change and yes,

• ease of doing business geared towards reducing red tape and expediting service delivery. The list can go on, but let’s spare that for the next piece which will delve specifically on the legal and regulatory regime governing real estate.

Most importantly, whether it is real estate, spices, tourism or high tech, the question that we must all strive to answer is, “What’s in it for them?” and by them, I mean the beautiful and hospitable people of Zanzibar.