Transparency of the Regulatory System
Tanzania has formal processes for drafting and implementing rules and regulations. Generally, after an Act is passed by Parliament, the creation of regulations is delegated to a designated ministry. In theory, stakeholders are legally entitled to comment on regulations before they are implemented. Stakeholders, however, often report that they are either not consulted or given too little time to provide useful comment. Moreover, the government has increasingly used Presidential decree powers to bypass regulatory and legal structures.
In 2016 the President signed the Access to Information Act into law. In theory, the Act gives citizens more rights to information, however, some claim that the Act gives too much discretion to the GoT to withhold disclosure. Although information, including rules and regulations, is available on the GoT’s “Government Portal” (http://www.tanzania.go.tz ), the website is generally not current and is missing information. Alternatively, rules and regulations can be obtained on the relevant ministry’s website, but many offer insufficient information.
Nominally independent regulators are mandated with impartially following the regulations. The process, however, has sometimes been criticized as being subject to political influence, depriving the regulator of the independence it is granted under the law. For example, in 2017, the nominally independent Energy and Water Utilities Regulatory Authority approved an 8.5 percent increase in tariff charges after rejecting the State-owned electric utility’s request for an 18.2 percent increase. Several days later, the Minister of Energy and Minerals revoked the increase alleging that it was not adequately consulted. Critics of this justification pointed to documents and meeting attendance records as evidence that the Minister was aware of the proceedings.
International Regulatory Considerations
Tanzania is a member of the World Trade Organization (WTO) and its National Enquiry Point (NEP) is the Tanzania Bureau of Standards (TBS). As the WTO NEP, TBS handles information on adopted or proposed technical regulations, as well as on standards and conformity assessment procedures. Tanzania is also part of both the EAC and the Southern African Development Community (SADC) and subject to their respective regulations. However, according to the 2016 East African Market Scorecard, Tanzania is not compliant with a number of EAC regulations.
Legal System and Judicial Independence
Tanzania’s legal system is based on the English Common Law system. The first source of law is the 1977 Constitution, followed by statutes or acts of parliament; and case law, which are reported or unreported cases from the High Courts and Courts of Appeal and are used as precedents to guide lower courts. The Court of Appeal, which handles appeals from mainland Tanzania and Zanzibar, is the highest ranking court, followed by the High Court, which handles civil, criminal and commercial cases. There are four specialized divisions within the High Courts: Labor, Land, Commercial, and Corruption and Economic Crimes. The Labor, Land, and Corruption and Economic Crimes divisions have exclusive jurisdiction over their respective matters, while the Commercial division does not claim exclusive jurisdiction. The High Court and the District and Resident Magistrate Courts also have original jurisdiction in commercial cases subject to specified financial limitations.
Apart from the formal court system, there are quasi-judicial bodies, including the Tax Revenue Appeals Tribunal and the Fair Competition Tribunal, as well as alternate dispute resolution procedures in the form of arbitration proceedings. Judgments originating from countries whose courts are recognized under the Reciprocal Enforcement of Foreign Judgments Act (REFJA) are enforceable in Tanzania. To enforce such judgments, the judgment holder must make an application to the High Court of Tanzania to have the judgment registered. Countries currently listed in the REFJA include Botswana, Lesotho, Mauritius, Zambia, Seychelles, Somalia, Zimbabwe, Swaziland, the United Kingdom, and Sri Lanka.
The 2015 Transparency International Global Corruption Barometer named the Judiciary as the third most corrupt Tanzanian institution and according to the 2017 Afrobarometer Survey the percentage of Tanzanians who believed that at least some/most/all of the Judiciary were corrupt was 48 percent/17 percent/3 percent, respectively. The selection and appointment of judges in Tanzania is criticized for its non-transparent nature. The Judiciary Service Commission proposes judges to the President for appointment. However, the criteria and process for candidates is unknown.
Laws and Regulations on Foreign Direct Investment
During the reporting period, new laws/regulations were enacted that may impact the risk-return profile on foreign investments, especially those in the mining industry. The laws/regulations include the Natural Wealth and Resources (Permanent Sovereignty) Act 2017, Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act 2017, Written Laws (Miscellaneous Act) 2017, and Mining (Local Content) Regulations 2018. The three new Acts were introduced by the executive branch under a certificate of urgency, meaning that standard advance publication requirements were waived to expedite passage. As a result, there was minimal stakeholder engagement.
Investors, especially those in natural resources and mining, have expressed concern about the effects of these new laws. Two of the new laws apply to “natural wealth and resources,” which are broadly defined and not only include oil and gas, but in theory could include wind, sun, and air space. Investors are encouraged to seek legal counsel to determine the effect these laws may have on existing or potential investments. For natural resource contracts, the laws remove rights to international arbitration and subject contracts, past and present, to Parliamentary review. More specifically, the law states “Where [Parliament] considers that certain terms …or the entire arrangement… are prejudicial to the interests of the People and the United Republic by reason of unconscionable terms it may, by resolution, direct the Government to initiate renegotiation with a view to rectifying the terms.” Further, if the GoT’s proposed renegotiation is not accepted, the offending terms are automatically expunged. “Unconscionable” is defined broadly, including catch-all definitions for clauses that are, for example, “inequitable or onerous to the state.” Under the law, the judicial branch does not play a role in determining whether a clause is “unconscionable.”
The Mining (Local Content) Regulations 2018 require that indigenous Tanzanian companies are given first preference for mining licenses. An ‘indigenous Tanzanian company’ is one incorporated under the Companies Act with at least 51 percent of its equity owned by and 100 percent of its non-managerial positions held by Tanzanians. Furthermore, foreign mining companies must have at least 5 percent equity participation from an indigenous Tanzanian company and must grant the GoT a 16 percent carried interest. Lastly, foreign companies that supply goods or services to the mining industry must incorporate a joint venture company in which an indigenous Tanzanian company must hold equity participation of at least 20 percent.
The Mining (Local Content) Regulations 2018 also set the timeframe for local content percentages to be raised over the next 10 years which vary by type of good or service provided. There are immediate requirements to use 100 percent local content for financial, insurance, legal, catering, cleaning, laundry, and security services. All contractors must submit a local content plan to the GoT, which includes provisions to favor local content and meets required local content percentages. The plan must include five sub plans on employment and training; research and development; technology transfer; legal services; and financial services. The regulations also require contractors to implement bidding procedures to acquire goods and services and to award contracts to indigenous Tanzanian companies if they do not exceed the lowest bidder by more than 10 percent. There are also regular contractor reporting requirements. Violating these regulations can lead to a fine of up to TZS 500 million or five years imprisonment.
Competition and Anti-Trust Laws
The Fair Competition Commission (FCC) is an independent government body mandated to intervene, as necessary, to prevent significant market dominance, price fixing, extortion of monopoly rent to the detriment of the consumer, and market instability. The FCC has the authority to restrict mergers and acquisitions if the outcome is likely to create market dominance or lead to uncompetitive behavior.
Expropriation and Compensation
The GoT may expropriate property after due process for the purpose of national interest. The Tanzanian Investment Act guarantees payment of fair, adequate, and prompt compensation; access to the court or arbitration for the determination of adequate compensation; and prompt repatriation in convertible currency where applicable.
GoT authorities do not discriminate against U.S. investments, companies, or representatives in expropriation. Since 1985, the Government of Tanzania has not officially expropriated any foreign investments. There have been cases, however, of government revocation of hunting concessions that grant land rights to foreign investors, including a U.S.-based company with strategic investor status in 2016. Also, in 2018, the GoT claimed that it had the right to take control of Indian-owned Airtel, a mobile communications company, because it “was conned” when it sold its interest in 2005. Airtel claimed that it followed all legal procedures when it acquired the company five years later in 2010. Negotiations continue, but some legal analysts assert the GoT is illegally attempting to expropriate the company. (See “Laws and Regulations on Foreign Direct Investment” for government actions that could substantially impact investor’s expected returns).
ICSID Convention and New York Convention
Tanzania is a member of both the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA). ICSID was established under the auspices of the World Bank by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. MIGA is World Bank-affiliated and issues guarantees against non-commercial risk to enterprises that invest in member countries.
Tanzania is a signatory to the New York Convention on the Recognition and Enforcement of Arbitration Awards, though the Arbitration Act of Tanzania does not give force of law in Tanzania to the provisions of the conventions. An arbitration award will be recognized as binding once it is filed in a Tanzanian court and will be enforceable as if it were a decree of the court, subject to the provisions of the Arbitration Act of Tanzania.
Investor-State Dispute Settlement
Investment-related disputes in Tanzania can be protracted. The Commercial Court of Tanzania operates two sub-registries located in the cities of Arusha and Mwanza. The sub-registries, however, do not have resident judges. A judge from Dar es Salaam conducts a monthly one-week session at each of the sub-registries. The government said it intends to establish more branches in other regions including Mbeya, Tanga, and Dodoma, though progress has stagnated. Court-annexed mediation is also a common feature of the country’s commercial dispute resolution system.
Despite legal mechanisms in place, foreign investors have claimed that the GoT sometimes does not honor its agreements. Additionally, investors continue to face challenges receiving payment for services rendered for GoT projects. In 2017, US-based Symbion Power filed an application for ICSID arbitration seeking USD 561 million for alleged breach of contract of a purchase power agreement.
International Commercial Arbitration and Foreign Courts
Under Tanzanian regulations, disputes between a foreign investor and TIC that are not settled through negotiations may be submitted to arbitration based on the arbitration laws of Tanzania; in accordance with the rules of procedures of ICSID or the World Bank’s Multilateral Investment Guarantee Agency (MIGA); within the framework of any bilateral or multilateral agreement to which the government and the country of the investor are parties; or in accordance with any other international machinery for settlement of investment disputes agreed upon by the parties. (See “Laws and Regulations on Foreign Direct Investment” section for recent restrictive legislation).
According to the 2018 World Bank’s Ease of Doing Business report, it takes an average of three years to conclude bankruptcy proceedings in Tanzania. The recovery rate for creditors on insolvent firms was reported at 21 U.S. cents on the dollar, with judgments typically made in local currency.