New law protecting investors

I am a South African and was aspiring to invest in your country in the year 2022. In 2021, I hired a consulting firm to undertake a due diligence procedure, mainly on the laws affecting investors in Tanzania. The consultant presented the report in February 2022. Apart from reporting about the existence of the employment and labour relations laws being skewed towards employees, he also reported that the Tanzania Investment Act doesn’t have strong provisions guaranteeing protection of investors’ assets and benefits offered under the law. I now want to see the Minister to discuss the possibility of having a private agreement in that respect. Can you assist in the process?
SR, SA  

The Tanzanian Employment and Labour Relations laws are not significantly different from your South African employment laws. Generally, employers are more powerful than employees. That being the case, labour laws skewness aim at correcting the imbalance of power between the worker and the employer; to prevent the employer from dismissing the worker without good cause; to set up and preserve the processes by which workers are recognised as ‘equal’ partners in negotiations about their working conditions amongst others. Thus, the Labour law acts as a tool to promote workers’ empowerment as well as protection, although some do claim that it has brought inefficiencies into the labour market.

As regards to the report by your consultant, we would like to alert you that the investment law which the consultant relied on in 2021 or early 2022 has been repealed. There is a new enactment, the Tanzania Investment Act, 2022 (the Act), which was passed by Parliament in November 2022. Contrary to the repealed law, the new law has introduced Part IV which entails the rights and responsibilities of the government and investors and further strengthens protection to investors.

Section 27 of the Act creates a predictable investment environment. It gives assurance that a business enterprise with granted incentives under the Act shall have the right to benefit from the issued incentives for 5 years from the date it was issued. It further gives a guarantee that in a span of 5 years, such incentives shall not be modified or altered in a manner that will adversely affect the investor.

Further section 28 guarantees investors for transfer of capital, loan instalments, profits, salaries and dividends. In clear words, it states that a business enterprise governed by the Act is guaranteed that, through any authorised bank and for a freely convertible currency, to transfer without conditions: actual profit or dividends from investment; payment relating to repayment of any loans when a foreign source provides a loan; income, after deduction of taxes and other payments, if a business enterprise is acquired or liquidated or any profit derived from the investment; and payment or other entitlements made to foreign workers employed in Tanzania in a business enterprise.

Section 29 also protects investors against nationalisation or expropriation of investors’ business enterprises. It categorically says that no business enterprise shall be nationalised or expropriated by the Government. Besides that, it states that no person who owns, whether wholly or in part, the capital of any business enterprise shall be compelled by law to cede his interest in the capital to any other person.

As in other countries, the law puts conditions when the Government of Tanzania will require to acquire any investor’s business enterprise. The new investment law bars any acquisition, whether wholly or in part, of a business enterprise to which the Act applies by the State unless the acquisition is under the due process of law which makes provision for payment of fair, adequate and prompt compensation. This law gives a right of access to the Court or a right to foreign arbitration for determining the investor’s interests or rights and the amount of compensation to which he or she is entitled. It cements the position that any compensation payable under Section 29 of the Act shall be paid promptly, and authorisation for its repatriation in convertible currency, where applicable, shall be issued.

Before we end, we must state that the previous investment act did have some of these provisions but the new law has brought in further safeguards for investors.