Tanzanian law: Year in review 2019 and a look ahead to what's up in 2020

Corporate transactions, mining and business organisations

Despite the pointedly raised thresholds for mergers and acquisitions (M&A) control in Tanzania, we saw a record number of M&A notifications in 2019 as the country’s M&A market remained busy with strategically important M&A transactions. Our expectation for 2020 is that levels of M&A activity would be flat to down as presidential and parliamentary elections keep investors in wait-and-see mode.

Key highlights included the merger between Azania Bank and Bank M Tanzania—which was under statutory management of the central bank (the Bank of Tanzania)—and the sale of UBL Bank Tanzania to Exim Bank Tanzania. We also saw the acquisition by Barrick Gold of Acacia Mining Plc; the acquisition of Nyanza Mining Company by Orecorp Tanzania; and the combination between MIC Tanzania Plc (Tigo) and Zanzibar Telecom Plc (Zantel). The acquisition by Jehangir Kermali Bhaloo of shares in Mwananchi Communications; the acquisition of additional shares by East African Breweries in Serengeti Breweries; and the sale of Kuku Foods to Dough Works, are chiefly notable.

The prevailing trends were continued regulatory measures taken by the Bank of Tanzania to merge certain banks over capital adequacy; and the enforcement of regulations on foreign ownership thresholds (the Media Services Regulations 2017 (GN No. 8/2017), for example, limits foreign ownership of print media to 49 per cent).

Other trends were: continued consolidation; private equity funds seeking Tanzania-based targets to purchase; and the existing low-growth milieu in which some companies are mulling growth through acquisitions.

The main sectors driving M&A activity in Tanzania during 2019 were mining, agriculture, energy, banking, insurance, telecoms and healthcare. Every M&A deal comes with tax implications that buyers and sellers sometimes overlook in a hurry to get deals done, but the need for proactive tax advice has never been greater than in today’s Tanzania. Regulation of M&A activity falls within the jurisdiction of the competition regulator and the sector-specific regulator of the target company, e.g., the Bank of Tanzania (BoT) regulates the financial sector, and the Tanzania Insurance Regulatory Authority (TIRA) regulates the insurance sector. If the target company has a business activity falling within the scope of the BoT’s or the TIRA’s regulatory mandate, the acquisition of a shareholding interest or a change of control may be subject to the BoT or the TIRA’s prior approval. The Fair Competition Commission (FCC) controls M&As that meet the specified thresholds.

As we look ahead into 2020, Tanzania will overhaul its archaic investment legislation, Tanzania Investment Act, 1997, in order to create a more favourable environment for investors to motivate major M&A, joint venture, takeover and other transactions which, on closure, bring sizable profits for banks. This would, ceteris paribus, spur bank lending and new business opportunities.

In the private equity market, investor interest was mainly in agriculture, consumer products, education, energy, fintech, healthcare, water, and waste management and recycling. One of the more notable trends in 2019 was the continued interest by the Netherlands-based private equity fund, DOB Equity, to invest in three Tanzanian companies, namely Zanrec, Natural Extracts Industries, and Jibu; and it is positively thought to be evaluating other targets in the country. This comes in the aftermath of the unilateral termination by Tanzania of its bilateral investment treaty (BIT) with the Netherlands. We hope that the leadership of the two countries will renegotiate and ratify a new BIT in future. In 2019, EXEO’s Agri-Vie Fund II took a significant minority shareholding in PPHL, a company that wholly owns Tanzanian subsidiary PPTL. Finding the right investee companies to partner with remains one of the biggest constraints on doing private equity deals.

In relation to the mining landscape, 2019 started off with a series of changes to Tanzanian mining laws and regulations. First, the Written Laws (Miscellaneous Amendments) (No.2) Act of 2019 introduced in the Mining Act, 2010 the “mineral import permits” requirement and the additional requirement of providing a tax clearance certificate from the Tanzania Revenue Authority—in relation to the grant by the Mining Commission of a consent to transfer mining and special mining licenses. Second, the Mining (Local Content) (Amendments) Regulations, 2019 reduced the local shareholder equity requirement for indigenous Tanzanian companies and for Tanzanian banks from 51 per cent to 20 per cent. Furthermore, with respect to maintaining a bank account and transacting through it, contractors now have the choice between an “indigenous Tanzanian bank” with a majority Tanzanian shareholding or a “Tanzanian bank” with not less than a 20 per cent Tanzanian shareholding. Previously, the requirement was an indigenous Tanzanian bank. This bodes well for foreign direct investment (FDI) opportunities in the mining sector in 2020. At the same time, efforts by the Tanzanian government are underway to implement the African Mining Vision (AMV) in Tanzania. AMV is a policy initiative for mineral sector governance in Africa adopted in 2009 by African Heads of State. In a nutshell, harnessing creative power was the secret to getting mining deals done in a tight regulatory environment.

Tumultuous 2019 developments in Tanzanian business organization law ushered in by the Written Laws (Miscellaneous Amendments) (No.3) Act, 2019 will have a significant impact on investment attractiveness and FDI inflows in 2020. These entail the removal of “companies limited by guarantee” (CLG) which were not established for investment, trade or commercial activities from the purview of the Companies Act, 2002; the mandatory conversion of CLGs possessing a certificate of compliance issued under the Non-Governmental Organizations Act, 2002 into NGOs; and the expansion of the powers of the Registrar of Companies at Brela to strike off companies from the register where he has reasonable cause to believe that a registered company, among others, has been fraudulently registered, is engaged in criminal activities, or is operating contrary to its prescribed objectives. The Registrar can also strike off a company where, by operation of law, all shareholders or directors have been prohibited from entering Tanzania.

The business community is intensely worried that these enormous powers may be exercised arbitrary. We expect the government in 2020 to review and revisit section 400A of the Companies Act, for the trend worldwide is to ease regulations in an effort to gain and sustain competitive advantage. We also expect the implementing regulations for single shareholder companies to be published in 2020.

Public policy and regulatory matters

In the transportation sector, Tanzania announced the launch of the Land Transport Regulatory Authority (LATRA) established under the LATRA Act, No. 3 of 2019, which became operative on 29 April 2019 with jurisdiction over Mainland Tanzania. As well, the Surface and Marine Transport Regulatory Authority Act No. 9 of 2001 (the SUMATRA Act) was repealed. The SUMATRA Act required SUMATRA to abide by international agreements and conventions to which Tanzania is a party. In contrast, this requirement has been omitted in the LATRA Act. Water sector reform in Tanzania in 2019 was partly borne out of the country’s need to ensure access to effective and sustainable water supply and sanitation services. The reforms encompassed the enactment of the Water Supply and Sanitation Act 2019. This Act repealed the Water Supply and Sanitation Act 2009 and the Dar es Salaam Water and Sewerage Authority Act 2001. Following this, the water sector is now regulated by the Water Supply and Sanitation Act 2019 and the Energy and Water Utilities Regulatory Act Cap 414. The 2019 enactment created the Rural Water Supply and Sanitation Authority (RUWASA), heralding opportunities for private sector provision of rural water supply and sanitation services. Peeking around the corner into 2020, we believe that close collaboration with all stakeholders and the provision of an enabling environment for private sector financing, in consort with the global trend of promoting public private partnerships, will be crucial if the government is to achieve success in the water sector reform.

Environmental regulation focused on decreasing plastic carrier bag litter by issuing the Environmental Management (Prohibition of Plastic Carrier Bags) Regulations 2019 on 17 May 2019. The import, export, manufacture, sale, supply, storage and use of plastic carrier bags regardless of their thickness was totally banned within Mainland Tanzania. Manufacturing or importing the bags in contravention of the regulations attracts a hefty fine of between sh20 million up to sh1 billion, or a sentence of two years imprisonment, or both. The only exceptions to the plastic carrier bags ban is for plastic or plastic packaging for medical services, industrial products, the construction industry, the agricultural sector, food processing, and sanitary and waste management. We wouldn’t be exaggerating to say that in 2020 the government may well institute tax breaks for entities that recycle plastic bags, in addition to granting some economic and financial incentives for the production and importation of alternative carrier bags.

Policymakers were also busy promoting changes in the chemicals industry. As a result, the Written Laws (Miscellaneous Amendments) (No.7) Act, 2019 amended the Industrial and Consumer Chemicals (Management and Control) Act, Cap 182 to prohibit any person from dealing in specific chemicals without being registered under the Act and to prescribe a maximum fine of sh200 million for contravention of the prohibition by a body corporate. The amendment also imposes a prohibition against importing unlabeled, obsolete and expired chemicals; and prescribes a maximum fine of sh5 million, or 6 months imprisonment, or both. You may ask, “Could Tanzania be an interesting place for chemical companies to explore for growth and investment?” We believe so. Tanzania has an excellent source of raw materials and minerals and its sheer population growth means more food is needed. But despite these factors, the unstable energy supply is a challenge to surmount. Indeed, the chemical industry might play a role in helping to overcome this challenge, since there are a variety of chemicals used in thermal power generation.

In the financial sector, the Bank of Tanzania (the BoT) continued with the microfinance legal and regulatory reforms started in 2018—the main thrust of which is market conduct and consumer protection. Exercising its powers under the Microfinance Act 2018, which brought all formal and informal micro credit or finance service providers, including individual money lenders, under regulatory oversight of designated authorities, the BoT issued a raft of regulations in 2019: the Microfinance (Role of the Minister) Regulations 2019, the Microfinance (Savings and Credit Cooperative Societies) Regulations 2019, the Microfinance (Community Microfinance Groups) Regulations 2019, and the Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations 2019. We see the reform as a generally positive influence on expanding and legitimizing inclusive financial services for the people of Tanzania.

The Minister for Lands, Housing and Human Settlements Developments fulfilled his promise to release the Land (Procedure for Mortgage of Land) Regulations 2019, aiming at ensuring the proper regulation, monitoring and supervision of money secured from a mortgage (mortgage money). With that aim, the Regulations contain an expansive definition of “undeveloped land” and “underdeveloped land” and require any person intending to obtain a loan secured by a right of occupancy to submit a declaration to the Commissioner for Lands stating that the mortgage money shall be invested in Tanzania. In order to register the mortgage, the mortgagee will have to submit a valuation report and a number of other documents. We see this as a big shift in mortgage registration obligations, and banks and financial institutions need to be on the qui vive for their new obligations. What’s more, within six months of registering a mortgage, the mortgagor will be required to submit a report to the Commissioner for Lands stating how the mortgage money has been utilized to develop the mortgaged land. Violating these procedures is tantamount to breaching the right of occupancy.

Meanwhile, amendments to the Government Loans, Guarantees and Grants Act, Cap 134 took place during 2019 vide the Written Laws (Miscellaneous Amendments) (No.7) Act 2019, inserting a new provision that enables the Tanzanian government to guarantee an insurance policy for projects funded or wholly-owned by the government. One of the objectives of this development is to enable domestic companies and government institutions to benefit from government-funded projects.

Ownership of land by non-citizens through inheritance also was a big issue for public policy makers. In Tanzania, section 20 of the Land Act, 1999 prohibits non-citizens from acquiring land unless it is for investment purposes in accordance with the Tanzania Investment Act, 1997. However, the High Court of Tanzania (Dr. Fauz Twaib, J) in Emmanuel Marangakis (as Attorney of Anastosios Anagnostou) v. The Administrator General, Civil Case No. 1 of 2011 (“Marangakis case”) observed that what was prohibited by the provision was the direct grant or allocation of land, and subsequently ruled that non-citizens could own land by way of inheritance. But in a classic example of legislative control over judicial rulemaking, Tanzania’s National Assembly overturned the decision in the Marangakis case in November 2019 by amending the Probate and Administration of Estates Act, Cap 352 vide the Written Laws (Miscellaneous Amendments) (No.8) Act of 2019. The amendment forbids administrators and executors from distributing landed property forming part of a deceased’s estate to non-citizen heirs. However, the amendment allows non-citizen heirs to benefit from proceeds of the property after it has been disposed off by the administrator or the executor, as the case may be. If you devised landed property to a non-citizen, the New Year 2020 is a good time to revisit your Will.

Intellectual property protection is vital to nurturing creativity; and it is inexorably linked with a nation’s economic development and growth. Thus, Tanzania improved its copyright protection regime through key changes to the Copyright and Neighbouring Rights Act, Cap 218.

The definition of ‘Court’ has been amended to mean a court of competent jurisdiction, thereby removing the idiosyncrasies that involved the pecuniary jurisdiction for copyright infringement cases. A new right, the right to benefit from a re-sale of copyright, has been introduced. This means that the rights of a copyright owner will not cease upon assigning the rights to a third party. And the Copyright Society of Tanzania (COSOTA) has been authorized to keep a register of contracts. This legislative reform portends well for artists and other copyright owners.

Technology, film and innovation

National efforts to further implement Tanzania’s ICT policy moved forward. The e-Government Act, 2019 was assented to by the President in September 2019. The Act establishes the e-Government Authority (“e-GA”), with a mandate to coordinate, oversee and promote e-Government initiatives and to enforce e-Government related policies, laws, regulations, standards and guidelines in public institutions. Additionally, the e-GA is empowered to facilitate public access to e-Government services (i.e. all services which are delivered by public institutions by electronic means). We see this as an especially powerful way to bring public administration closer to the people and to businesses.

Technology has reshaped the film industry and, in particular, the ways movies, documentaries, advertisements and TV series are produced, edited, promoted and watched. Regulatory scrutiny and oversight of the industry increased in 2019, in a sweeping reform amendment of the Films and Stage Plays Act, Cap 230 brought by the Written Laws (Miscellaneous Amendments) (No.3) Act of 2019. Foreign production companies or individuals using Tanzanian scenes, content and locations are required to submit raw footage, a copy of the finished work, and a prescribed exit clearance form to the Tanzania Film Board.

On top of that, there is the condition to grant rights to the government of Tanzania to use the content to promote Tanzania, in line with the government’s initiative to position the country as a top tourism and investment destination. The maximum fine for contravention of these procedural requirements is 5 per cent of the production cost.

Hype around cryptocurrencies, especially Bitcoin, was so trumpeted in Tanzania in 2019, and the Bank of Tanzania issued a notice warning the public to exercise extreme caution when trading in cryptocurrencies. Instructively, the mandate to issue bank notes and coins and declare legal tender in Tanzania is vested solely in the Bank of Tanzania, yet cryptocurrencies are controlled by a network consisting of a chain of unknown computers running on open-source code. Tanzania does not yet have a legal or regulatory framework applicable to cryptocurrencies or their equivalents. Granted the heightened allure of cryptocurrencies has diminished, but we believe that the Bank of Tanzania will keep a watchful eye on cryptocurrencies and other blockchain technology issues. Efforts to deploy technology in the courts gained momentum in 2019 through the Civil Procedure Code (Amendment of the First Schedule) Rules, 2019. This came amidst the earlier regulations issued in 2018, namely the Judicature and Application of Laws Act (Electronic Filing) Rules, 2018. Indeed, court cases can be filed and assigned to judges electronically, and added to that substituted service, which was made by publication in newspapers, can be done by e-mail.

International trade and cross-border governance

On 13 November 2019 Tanzania ratified the 2014 Protocol amending the WTO Marrakesh Agreement (Agreement on trade facilitation/TFA), becoming the 147th State to have done so. We recall that the entry into force of the TFA in February 2017 coincided with great efforts to establish the African Continental Free Trade Area (AfCFTA). Presently, the AfCFTA, which came into force on 30 May 2019, is the largest free-trade area in world in terms of participating members: Out of 55 African Union states, Eritrea is the only non-participating member. As at 6 December 2019, 29 States Parties (Tanzania not being one of them) have ratified the AfCFTA pact. We can think of no persuasive reason for Tanzania not to ratify the pact, given that the United Nations Economic Commission for Africa estimates that the AfCFTA will boost intra-African trade by 52 per cent by 2022. Tanzania’s President John Magufuli took over the chairmanship of SADC following a meeting by Heads of States from the bloc in Dar es Salaam in August 2019. We are optimistic that these and other ongoing developments will give new impetus to efforts to implement the Blueprint for regulatory reforms to improve the Tanzanian business environment in 2020.

Good governance and procedural law

Significant developments aimed at fostering good governance through combatting corruption and money laundering led to the promulgation of two new anti-money laundering regulations in 2019, bolstered with strict reporting guidelines for lawyers and accountants and severe penalties for breaches. At the same time, the Written Laws (Miscellaneous Amendments) (No.4) Act of 2019 introduced a package of key amendments to various laws, including the Criminal Procedure Act, Cap 20; the National Prosecution Service Act, Cap 430; and the Prevention and Combating of Corruption Act, Cap 329.

This has led to increased prosecution activity, but which seems to have been counterbalanced by the “plea bargaining” concept introduced in Tanzania’s criminal procedure law as part of the amendment package.

In the sphere of civil procedure law, Tanzania moved to increase the pecuniary jurisdiction of Resident Magistrates’ Courts to handle commercial disputes as a resounding milestone in reducing the backlog of cases at the Commercial Division of the High Court. A much-needed refresh of the Tanzanian Court of Appeal Rules was issued by Chief Justice Prof. Ibrahim Juma on 26 April, 2019 vide the Tanzania Court of Appeal (Amendment) Rules, 2019, in a welcome move to drop procedural technicalities and focus on substantive justice.

In this special briefing, we have not covered other major trends and issues—such as: taxation, landmark judicial decisions, and election campaign legal matters (given that the next presidential and parliamentary elections will be held in 2020)—but you will learn more about them in our columns published in The Citizen every Saturday. Taking all these into account, the New Year 2020 will almost assuredly become one of the most eventful years in memory. Finally, let us be inspired by Heinlein’s great sentiment and reminisce about 2019 with the warmest of memories. We wish you a Prosperous New Year!

Paul Kibuuka ([email protected]) is a tax and corporate lawyer, tax policy analyst, and the chief executive of Isidora & Company.

*************************************************************

Lilian Kyaruzi ([email protected]) is a corporate lawyer and director in Isidora & Company and an international development enthusiast.