Research Proposal

FOREIGN DIRECT INVESTMENTS AND SOCAL SECURITY FUNDS

LONG-TERM PROJECTS IN TANZANIA

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INTRODUCTION

1.1 Background Information

Tanzania has embarked in campaign on attracting foreign investors as one of the strategies of

revamping the country’s economy. The Foreign Direct Investment (FDI) has been shown to play

an important role in promoting economic growth, raising a country’s technological level, and

creating new employment in developing countries (Blomström and Kokko, 2003;

It has also been shown that FDI works as a means of integrating developing countries into the

global market place and increasing the capital available for investment, thus leading to increased

economic growth needed to reduce poverty and raise living standards (Rutihinda, 2007; Dollar

and Kraay, 2000; Dupasquier and Osakwe, 2005).

Due to the Economic and Technological changes, the need for foreign direct investments in

Africa has continuously increased since last decade of 1990’s following a systematic

abandonment of communist ideas which insisted on self-reliance and encouragement on

domestic industrial growth. The globalization has brought about the new era of sense and

advancement of individual mind change worldwide. This is the process of transformation of local

or regional phenomena into global ones which is a combination of economic, technological,

socio-cultural and political forces. The Globalization has improved and increased the need for

African countries to invite foreign investments in their countries as efforts to foster economic

and social development that has remained poor since independent 1960’s.

FDI however has a direct and indirect impact on domestic employment: It often generates new

employment, especially in the case of Greenfield investments, and that is the direct effect. FDI

also creates jobs through forward and backward linkages with domestic firms, and that is the

indirect effect on employment in the host country (Asiedu 2003:5). Not only that, but also the

actual effects of FDI on employment in Tanzania are also both positive and negative, but the

information available indicates that a number of sectors have been accompanied with positively

or negatively results. These include mining, agriculture and tourism to mention but some.

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In Tanzania local investment generation, foreign investors can become important joint venture

point of reference through the introduction of new opportunities like new jobs in their new

projects (i.e., Greenfield investment). However, one expected outcome of privatization is the

improvement of workforce and social facilities be in standard measures. Therefore, the

development effect of foreign investment to a particular economy has to be analyzed with some

care.

In Tanzania the FDI is under Tanzania Investment Centre (TIC) which was established in 1997

by an Act of Parliament. Its main objective is to be the primary agency of Government to co-

ordinate, encourage, promote and facilitate investment in Tanzania. In performing these

functions, TIC subjects the investor’s project into social cost-benefit analysis.

1.1.2 Globalization and FDI

Globalization has extensive impact on the world of business as the world seems to shrink, and

other businesses halfway around the world can exert as great an impact on a business as one right

down the street.

Internet access and e-commerce have brought small-scale coops in Third World nations into the

same arena as thriving businesses in the industrialized world, and visions of low-income workers

hand weaving rugs on primitive looms that compete with rug dealers in major cities are not

totally far-fetched. (Stipo, Francesco).

Blomström and Kokko, (2003) argue that, FDI in African Economies followed the shrink of

world, a lot of economic opportunities have been created but to be competed for at a virtually

market rate. On the same view, especially for disadvantaged growing or non-growing economies,

especially those of Sub-Saharan region, the shrinking world, a result of globalization is more a

disadvantage because their ill-financed industries using rather obsolete technologies cannot

guarantee and promise to produce goods that can compete with those produced by giant

industries of America and Japan.

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Their choice should either be to subject themselves as only consumers of western industries

products or invite the industries to invest in their local countries or enter into kinds of trade

partnerships and produce jointly, thereby, acquiring modern technologies.

Tanzania is among the countries of Africa which has been struggling hard to attract more

investors. Indeed, Tanzania is today rated as one of the countries with a big flow of foreign

investments United Nations Conference on Trade and Development(UNCTAD) 2007.This brings

about the adoption of new technology which to some extent promote the growth of country

economy.

1.2 Statement of the Problem

Statement of problem refers to research problem which can be viewed as question that has no

answer yet. The term “problem” means a question or issue to be examined. It refers to some

difficulty which a researcher experiences when conduct either a theoretical or practical situation

and want to obtain a certain procedure of solving this problem which occurs within the society.

In every developing country FDI often expected to establish or introduce new opportunities and

create a friendly environment to both local and international investors under international

standards. For example, different studies done indicate that FDI has a multiplier effect on

domestic employment. Aaron (1999) estimates that FDI in developing countries created about 26

million direct jobs and 41.6 million indirect jobs in 1997. Lyanda (1999) obtains a higher

estimate for Namibia: about 2 to 4 jobs are created for each worker employed by foreign

affiliates.

Despite the rapid growth of FDI in developing countries during the 1990s and the significant

share of foreign affiliates in industrial output and exports by the early years of the 21st century,

the direct employment generated has been very limited. Most of investment projects or business

activities are not set to last longer or lifelong sustainable activity.

While sustainable investment projects is regarded by governments as an important potential

contribution that FDI can make to their economies, but things are contrary, most analysts of the

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investment sector said that still the effort do not promising as the Government expect, of which

instead the investors comes in the country for different purposes. This is what propels this

study on the role of FDI to sustainable investment on long term projects introduced by

social security institutions in Tanzania. (A case study of National Social Security Fund,

(NSSF).

1.3.1 General Objective

The objective of this study is to examine the impact of Foreign Direct Investment (FDI) on

National Social Security Fund (NSSF) long-term projects in Tanzania.

1.3.2 Specific Objectives

The specific objectives of the study are:

a) To explore the investment opportunities for FDI which affect NSSF in Tanzania

b) To examine strategies used by NSSF to promoting sustainable long-term projects` in which

FDI has interest in Tanzania.

c) To examine the NSSF investment policies used in creating conducive long-term business

investment with respect to FDI in Tanzania.

d) To compare the performance of NSSF and FDI n the long-term projects investment Tanzania.

1.4 The general Research Question

The general research question of this study is: What is the impact of Foreign Direct Investment

(FDI) on National Social Security Fund (NSSF) long-term projects in Tanzania?

Specific research questions are:

i. What are the available long-term investment opportunities for FDI which affect NSSF in

Tanzania?

ii. What are the strategies used by NSSF to promoting sustainable long-term projects` in which

FDI has interest in Tanzania?

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iii. What is the status of the NSSF investment policies used in creating conducive long-term

business investment with respect to FDI in Tanzania?

iv. What is the performance of NSSF and FDI n the long-term projects investment Tanzania?

1.5 Significance of the study

Tanzania is committed in encouraging the growth of strong and stable social security schemes as

a way of securing people to live a healthy and long life. The outcome of this study will help the

policy makers to make good policies on how NSSF and FDI could invest on long term projects

for the benefits of all stakeholders in Tanzania. In addition to that the new knowledge shall be

added to the existing stock of knowledge on how FDI and NSSF shall continue using public

funds in long-term projects. Also problems concerning long-term investments shall be solved;

finally all stake holders shall get information and knowledge through seminars and workshops.

1.6 Scope of the study

The study will be conducted at the National Social Security Fund and Tanzania Investment

Centre to gather the necessary information pertaining to the effort shown by NSSF on making

sustainable investment on long term projects by attracting FDI’s in Tanzania.

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LITERATURE REVIEW

2.1 Conceptual Framework

This study based on the concept of different economic variables; thus Foreign Direct Investment

increase efficiency and productivity and bring more new productive employment opportunities in

the economy as result it will enhance poverty reduction by increasing smallholders income in

their production and local skills to enhance the achieving of the Millennium Development Goals

(MDGs)

Although economic growth is not a sufficient condition for poverty alleviation and improved

social welfare, there is evidence that higher incomes in developing countries benefit the poor

segments of the population proportionately (Ikara, 2003). FDI is a key element in generating

socio economic growth as well productive industries will pay more taxes to the government

which will facilitate the country social welfare development (Dollar and Kraay, 2000)

For example, Tambunan (2004) shows that much of the contribution of FDI to poverty reduction

is through widening access to employment, especially productive employment, education, health

services etc. He points out that in many developing countries insufficient job opportunities,

health and education services are the result of inadequate levels of investment, both domestic and

foreign.

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2.1.2 Foreign Direct Investment (FDI)

Shapiro (2003) defined Foreign Direct Investment (FDI) as the acquisition abroad of plant and

equipment. Under U.S. rules it entails ownership of at least 10% of the equity.

Foreign Direct Investment is also said as the kind of investment which gives foreign owners

control over the behavior of firms in which the investment is made. Lipsey et al (1995).

The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a

multinational corporation (MNC). In order to qualify as FDI the investment must afford the

parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning

10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for

an unincorporated firm; lower ownership shares are known as portfolio investment. IMF (1993).

Foreign direct investment (FDI) in its classic form is defined as a company from one country

making a physical investment into building a factory in another country. Its definition can be

extended to include investments made to acquire lasting interest in enterprises operating outside

of the economy of the investor (www.unctad.org)

2.1.3 FDI and Human Capital Development (Skills and Education)

The importance of human capital for FDI has increased as economies have shifted more and

more too knowledge-intensive production technologies (Miyamoto 2003). As a consequence,

multinational corporations are increasingly looking for a well educated labor force, not just low

labor costs. In fact, the availability and cost of low skilled workers is now less relevant for FDI

than the availability of high skilled workers. Foreign investors are seeking the right combination

of wages, skills and productivity. This may explain why countries such as India have attracted

significant inflows of FDI in the IT sector, which requires a stock of well-trained scientists and

technicians. A number of studies have investigated the role of human capital as a determinant of

FDI.3 Borensztein et al. (1998) find that there is a strong complementary effect between FDI and

human capital such that investments have high productivity only when the host country has a

minimum threshold stock of human capital. Noorbakhsh et al. (2001) also find that human

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capital is one of the more important determinants of FDI inflows. The results show that the

impact of education was the strongest in the early 1990s) reflecting the shift of investments to

services and technology-intensive manufacturing. Asiedu (2005) argue that human capital in

Africa remains at low levels, though countries have made consider- able progress in recent years.

In particular, the literature reveal that this affect the employment opportunities to the host

countries whereby the FID’s recruit staff from outside hosting country which increases

unemployment.

2.1.4 FDI contribution to human resource development in the host country

In general, firms in both developed and developing countries under-invest in training because of

market failures resulting from credit constraints, lack of information/awareness and labor

turnover. These constraints are less binding for larger firms, implying that most foreign-owned

companies are in a better position to train in comparison with domestic firms. MNCs are in

particular keen on developing the skills of their local employees through education and training

(Noorbakhsh et al. 1999; Miyamoto 2003).

Asiedu (2004) presents figures on the provision of formal training to workers in four Africa

countries (Ghana, Kenya, Zambia and Zimbabwe), which illustrate that foreign-owned firms are

more likely to train their employees than their domestic counter parts. For example, in 1995, 46.2

per cent of wholly foreign-owned firms in Kenya provided training compared with 16.1 per cent

of wholly domestic-owned firms.

Governments should encourage multinationals to undertake human resource development in

order to facilitate technology transfer. Such training spillovers can occur via vertical (backward

and forward) linkages with domestic firms. Spillovers can also result from employees of

multinational corporations (MNCs) seeking work in domestic enterprises (labour turnover) or

from those starting up their own spin-offs (Miyamoto 2003)

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2.1.5 FDI’s Social Economic Benefit Measures

The main reason for conducting social cost benefit analysis is to subject project choice to a

consistent set of general objectives of national policy. For example, does the proposed

investment contribute towards national goals (Tanzania Vision 2025 and Millennium goals)

related to higher employment, output, consumption, savings, foreign exchange earning, income

distribution and other important national objectives?  Does the investment meet desirable

environmental standards? Will the net social benefits exceed social costs?

The analysis based on following.

1. Employment Creation. Will proposed investment create jobs, both directly and

indirectly?

2. Technology, Knowledge and Skills Transfer. One important measure for evaluating

investment is whether the proposed project has a chance of enhancing technology,

knowledge and skills transfer. Often FDI can bring into the country both hard technology

(e.g. equipment, industrial processes) and soft technology (e.g. knowledge, information,

expertise, organizational skills, management, marketing and technical know-how).

3. Promotion of the country’s exports, competitiveness and markets. Transnational

companies can help boost the country’s exports through their foreign affiliates. In

general, Foreign Direct Investment (FDI) can be an important intermediary between

Tanzanian domestic producers and markets abroad. Foreign investors engaged in export-

oriented primary manufacturing and service activities can be particularly useful in

enhancing the county’s export competitiveness – in part because of their technological

superiority and quality consciousness.

3. Linkages with sectors of the economy. Is the investment likely to source inputs in the

local market? Will the investment improve the supply chain of goods and services? Will

the investment add value to domestic resources? These and other considerations that

foster linkages within the economy are important for accelerating economic growth.

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5. Improvement in the country’s financial inflows and balance of payments. Foreign direct

investment can inject substantial financial resources into the country beyond those

referred to in the statutory requirements. Such resources if channeled to new investments

(Greenfield-type investments) or infrastructure (e.g. electricity, telecom, water and

sanitation, roads (build-operate principles) can make marked contribution to national

development. Under social benefit-cost analysis, investment inflows have to exceed

outflows in terms of profit and other remittances). 

2.2 Empirical Literature Review

Research conducted by UNCTAD for the World Investment Report 2000 revealed that, for the

host country, the benefits of merger and acquisition (M&A) are lower and the risks of negative

effects are greater when compared to Greenfield investments, especially at the time of entry over

the short term. An UNCTAD research on M&A concluded that: Social Observatory Pilot Project

– Final Draft Report – FDI:

FDI through M&A correspond to a smaller productive investment than Greenfield as the

financial resources do not necessarily go into increasing the capital stock,

FDI through M&A is less likely to transfer new or better technologies than Greenfield

investment.

FDI through M&A do not generate employment at the time of entry into the host

economy, and may lead to lay-offs as the acquired firm is restructured,

FDI through M&A can reduce competition, and may be used deliberately to reduce or

eliminate competition.

Over the longer term, cross-border M&A are often followed by sequential investments

that do increase the capital stock.

Ideally the purpose of investment is to benefit both the investing company and the host economy.

However M&A are likely to result in profit for the investing firm but destruction of the domestic

industry. Evidence shows that in some cases, foreign investors enter a market solely with the

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purpose of closing down domestic competitors and establishing a monopoly in the economy. The

most noteworthy policy mechanism against such practices and which also serves to protect the

domestic economy is a competition policy. UNCTAD (2002).

A famous empirical evidence of the failure of FDIs to bring about intended benefits of FDI in

Africa is that of Nigeria, which created a social unrest and wrongly ultimately led to execution of

an environmental activist, Ken Saro-wiwa. Smith D.(1997), observes that the history of FDI in

Africa raises serious questions about its contribution to human security. Many operations have

been subject to critical scrutiny. The activities of Shell Oil in Nigeria came under the media

spotlight in Nov.1995 when Ken Saro-Wiwa, the leader of the Ogoniland people, was executed

by the government. Saro-Wiwa, a human right activist was campaigning for the recognition of

the rights of the Ogoni as well as restoration of environmental sanity in his homeland. Ogoniland

provided about 80% of Nigeria’s oil income but its people did not see any tangible benefits

accruing to the Ogoni people as a whole.

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RESEARCH METHODOLOGY

Exploratory studies are practical if you wish to clarify your understanding of a problem

(Saunders, Lewis & Thornhill, 2000). Robson (1993, cited by Saunders, Lewis & Thornhill,

2000) describes exploratory studies as a method of finding out “what is happening; to seek new

insights; to ask questions and to assess phenomena in a new light.

For the purpose of this research, exploratory is aiming at exploring how the investment at

National Social Security Fund (NSSF) Tanzania has contributed to the sustainable economic

projects in terms of quantity, quality and the social economic benefits in Tanzania.

3.1 Research Methods

Both qualitative and quantitative research methods will be applied to provide an overview of the

strategy which will be used to conduct the research and derive the data necessary to answer the

research questions that were outlined previously in chapter one.

3.1.1 Qualitative Methods

According to Denscombe (2000) a qualitative research is practical when a researcher wants to

transform what has been observed, reported or registered into written words and not numbers.

Qualitative research tends to rely on detailed and through descriptions of events or people. They

are often associated with small-scale studies, and due to its ability to penetrate a situation or

problem it is considered to be an excellent tool to handle multifaceted situations.

In regards to this study researcher will employ qualitative approaches since the aim of this study

is to assess the post-impacts of investments at NSSF in comparison with previous situation

before the influence of global forces that led social institutions to change accordingly. The

researcher will use qualitative technique to assess policies, trends in its core objectives as a social

security scheme, concerns for environmental protection and investments in assets and

technologies. To some extent Quantitative methods will be employed to asses’ statistical data in

direct local and international investment for the institutional as well as country`s benefit.

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3.2 Research Design

This is a plan which includes every aspect of a proposed research study from the

conceptualization of the problem right through to the dissemination of the findings (Kothari

1993).

This study will be qualitative using the descriptive case study design. Reasons for selecting the

case study design include the need to generate in depth knowledge variables in the study.

The design selected is due to its flexibility in terms of data collection and analysis. Moreover the

case study is less expensive given the financial constraints which the researcher experiencing.

3.3 Area of the study

The study will be carried out in Dar-es-salaam, and will involve NSSF headquarter and its

branches at Dar-es-salaam as well as Tanzania Investment Centre.

3.4 Population of the Study

The population that is intended to be contacted by this study will be NSSF officials (both

management and non management staff), and management of Tanzania Investment Centre.

These populations will be able to give all the data needed for the completion of this study.

3.5 Sampling Techniques

Sampling technique is a process of obtaining a sample of units or population to be included in

the study. A sample is a representative of the whole population or units. It bears all

characteristics of population/units. Purposive sampling procedure is the process of obtaining a

list of required units or persons as a sample to be included in a study (Babie 1991, & Bailey,

1990).

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3.6 Sample Size

For the purpose of this study, the researcher is intending to select randomly 60 employees from

NSSF are expected to be selected from the population, and 5 from the management team of the

TIC. The table below show the number of the sample size selected randomly from the respective

population.

Table 1: Respondents sample distribution

S/N Category of respondents Female Male

1 NSSF employees 25 35

2 TIC management 3 2

Total 28 37

Source: Compiled field data, 2012

3.6.1 Sample Selection

3.6.2 Purposive sampling method:

This is a non - probability sampling. This method involves purposive or deliberate solution of

particular units of the universe for constituting a sample which represents the universe

population (Kathar 2003 p. 19)

The researcher used her expertise in judgment to select units that will be representative and

typical of the targeted population believing that the population sample has rich information and

reliable to the issue studied. The methods will be used to select the 30 respondents who are

NSSF management and employees, Tanzania Investment Centre staff and Tanzania Revenue

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Authority staff who are stakeholders in any kind of investment established or introduced within

its area of occupation regarding to investments and social development issues.

3.6.3 Simple Random Sampling

This is one of probability sampling techniques. The method is preferred when carrying out any

form of statistical analysis. By using this method every unity of enquiry will be given an equal

chance of being selected (White, 1999)

Technique will be used by researcher to select randomly respondents from selected purposively

of categories/groups of NSSF employee and TIC management whereby every respondent in the

population categories will be given an equal chance to appear in the sample and reduce the bias.

The sample will be drawn randomly from the selected groups so as to obtain the most relevant

information to meet the objective of the study. The technique will reduce bias in selecting

representative from population.

3.7 Data Collection.

Types of data to be collected.

3.7.1 Primary data

The data will be collected by using:

Interviews

Questionnaires

Secondary data

The data will be gathered through the documentary review in which the various documents and

records such as policies, objectives of social security investment measures from TIC and NSSF

human resources records will be reviewed.

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3.7.2 Methods of Data Collection

According to Yin (2003) no source of information is better than others. In fact they should be

considered complementary, and therefore a good case study will rely on as many sources as

possible. When gathering information for case studies a major strength is the opportunity to use

many different sources of evidence. The use of several sources of evidence means that the

researcher has the opportunity to obtain multiple measures of the same phenomenon that adds

validity to the scientific study.

3.7.3 Interview

Is the technique of data collection that involves presentation of oral verbal stimuli and obtaining

replies from the respondents? This method can be used through personal interview and of

possible telephone interviews (Kothari 1990).

This method is selected to be used in seeking information from NSSF employees and

management respondents. The method will help the researcher to probe further for clarity and

assurance of the replies from professionals and respondents as the interview process went on.

3.7.4 Questionnaire

The interview is a set of questions administered through oral or verbal communication, or is a

face to-face conversation (Kothari, 1990). It is the best technique that guarantees privacy and

confidentiality. It includes both close and open ended questions and it will be given to those who

know to read and write. The method will be used to collect data from NSSF staff. The method

will make respondents be free to think critically and write on the absence of the researcher hence

be able to provide reliable data.

3.7.5 Documentary review

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Document review involves the process of going through different types of document so as to get

useful information for the study (Cohen, 2002).

The data will be obtained through reading different articles, journals, newspapers, dissertations

and the use of the Internet regarding to social security investments priorities and guidelines on

investment sector in Tanzania. The data gathered via this method will further used to validate or

invalidate the raw data that will be directly collected from respondents.

3.8 Data analysis and presentation

3.8.1 Data processing and analysis

The study will use both quantitative and qualitative research procedures in data analysis. The two

methodological procedures are to be used in order to counter shortcomings from each technique

(Saunders et al, 2003).

The data processing will include

Coding data will be assigned with numerals or other symbols to answers so that responses can be

put into a limited number of categories to the research problem under consideration.

Editing – The collected raw data will be examined to detect errors and omission are accurate

consistent with other facts gathered, uniformly entered as completed as possible. Classification –

raw data collected from respondents will be reduced into homogeneous groups so as to get

meaningful relationships and reduce the deviations. This will involve arranging data in groups

or classes on the basis of common characteristics.

Tabulation – raw data will be summarized and displayed in the same compact form of

statistical table in the orderly arrangement in columns and rows.

Then data will be mechanically analyzed through Excel’s Statistical Tool (Stat Plus Package

2007 Ed)

3.8.2 Data presentation

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The data collected will be presented using statistical graphs, pie charts, tables and frequencies

(percentages) so as to make the information self-elaborative and easily understood.

3.8.3 Ethical considerations

To take care of the quality of the collected data and to guarantee the privacy of the participants,

personal data will be kept anonymous for those who don't belong to the research group.

The research project will be under strictly supervision to make sure it is ethical. As much as

possible, copies made of the data, to make sure no data lost.

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TIME SCHEDULE AND BUDGET

i) Proposed work plan for the study

Activity Duration

1. Questionnaire preparation 1 week

2. Pilot study 2 weeks

3. Field work 4 weeks

4. Data processing and analysis 4 weeks

5. Report writing 3 weeks

6. Submission 1 week

7. Total 15 weeks

The study activities may be visualized pictorially and chronologically as follows

Activity Duration Weeks

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1 Questionnaire

Preparation

1 week

2. Pilot study 2 weeks

3. Field work 4 weeks

4. Data processing and

analysis

4 weeks

5. Report writing and production3 weeks

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6. Submission 1 week

ii) Budget Estimate

No.Item

Rate (Tshs) No. of days Amount in Tshs

1. Data Collection and Analysis

Transport

Data Analysis

Field allowance

5,000 per day

-

25,000 per day

40

-

10

200,000/=

300,000/=

250,000/=

2. Stationeries

Rim

Printing

Flash disc

Internet

5

1

@ 10,000/= 50,000/=

60,000/=

50,000/=

30,000/=

3. Final Report Production

Printing and binding 200,000/=

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Total 1,140,000/=

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