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. However, ministries and regulatory agencies do publish a list of anticipated regulatory changes or proposals intended to be adopted/implemented. There is not a period of time set by law for the text of the proposed regulations to be publicly available. Thus, stakeholders often report that they are either not consulted or given too little time to provide useful comment. Ministries or regulatory agencies do not have the legal obligation to publish the text of proposed regulations before their enactment. 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” (https://www.tanzania.go.tz/documents ), the website is generally not current and incomplete. 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.
Tanzania does not meet the minimum standards for transparency of public finances and debt obligations.
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 (most recent), Tanzania is not compliant with several 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 Tanzanian constitution guarantees judicial independence. Judges are appropriately trained, appointed by the president in consultation with an independent Judicial Service Commission, have secure tenure until retirement at age 60, and are promoted and dismissed in a fair and unbiased manner. This gives the higher-level courts considerable independence. In 2018, the head of Tanzania’s judiciary, Chief Justice Ibrahim Hamis Juma, publicly warned politicians to stay off his “territory” warning of grave consequences for those who do not.
Corruption within the judiciary remains a concern, despite President Magufuli’s very public campaign against corruption. 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.
Regulations and enforcement actions are appealable and they are adjudicated in the national court system.
Laws and Regulations on Foreign Direct Investment
In 2017, 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 constitution and investment acts require government to refrain from nationalization. However, 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. For protection under Tanzania Investment Act, foreign investors require USD 500,000 minimum capital (a local one needs USD 100,000).
GoT authorities do not discriminate against U.S. investments, companies, or representatives in expropriation. There have been cases 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. In late-2018, the GoT expropriated several dormant cashew-processing factories. In the same vein, in early-2019, the GoT reportedly repossessed 16 previously-privatized factories that were not in operation. At the same time, the government issued a notice to more than 30 businesses, including hotels and other factories, warning them that if they did not present a plan for revitalizing their businesses, the GoT would repossess them too. The ownership structure of these businesses unconfirmed; however, there are reports that some have foreign ownership. At least one factory with substantial U.S. investment reports that the GoT has blocked the sale of its assets.
There are numerous examples of indirect expropriation, such as confiscatory tax regimes or regulatory actions that deprive investors of substantial economic benefits from their investments.
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.
The highly anticipated Public Private Partnership (PPP) (Amendment) Act, No. 9 of 2018 (the PPP Amendment Act) entered into force in September 2018. PPP agreements are now subject to local arbitration under the arbitration laws of Tanzania. This provision augments the existing governing law provision which provides that the PPP agreement will be governed by Tanzanian law. Therefore, in the event of a dispute, the parties must select a local arbitral forum i.e. the National Construction Council or the Tanzania Institute of Arbitrators. Additionally, Section 25A makes provision for PPP projects relating to natural wealth and resources to recognize the provisions under the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 and the Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 (collectively the Natural Wealth Laws). These provisions include only local arbitration under Tanzanian law will be recognized as well as the right for Parliament to review any agreements in relation to, but not limited to, natural wealth and resources.
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. One high profile example of such a dispute is that of U.S.-based Symbion Power, which in 2017 filed an application for ICSID arbitration seeking USD 561 million for alleged breach of contract of a purchase power agreement, and the dispute is ongoing.
International Commercial Arbitration and Foreign Courts
On 12 September 2018, the Tanzanian Parliament enacted the Public Private Partnership (Amendment) Bill 2018. The amendment includes a provision requiring foreign investors to resolve disputes exclusively through Tanzania’s domestic courts, without recourse to international arbitration. This has been a cause of alarm among international investors. The bill comes just a year after two natural resources legislation handed the Tanzanian government and parliament greater control over mining, oil and gas operations in the country, including the right to renegotiate or remove certain terms from existing contracts.
The Attorney General, Adelarus Kilangi, told Members of Parliament during the passage of the bill that the Tanzanian judicial system was best placed to hear disputes from international investors. He further commented that the amendments were necessary to counteract the “bias” of international arbitration institutions, such as the International Centre for Settlement of Investment Disputes (ICSID) and the panels of international arbitrators who hear such disputes.
In August 2018, Tanzania Electric Supply Co (Tanesco), wholly owned by the Tanzanian government, lost an appeal against an ICSID award in a long-running case against Standard Chartered Bank and was ordered to pay USD 148 million. Tanesco is also facing a claim from U.S.-based Symbion Power for USD 561 million. There are at least 22 pending filings of international arbitration against Tanzania.
According to the 2019 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 20.3 U.S. cents on the dollar, with judgments typically made in local currency.