The Citizen | 11 February 2019
Investor-state dispute settlement in Tanzania
By Aisha Ally Sinda
The government of Tanzania recognises that foreign direct investment can act as a driver for economic development. The Fifth Phase Government has demonstrated renewed commitment to industrialisation for Tanzania’s economic development and foreign investors are vastly encouraged to invest. But in what would seem as an illogical move, Tanzania has embarked on process of regulation of its foreign investment regime by enacting legislation, which exclude international arbitration.
In September 2018, the government passed the Public Private Partnership (Amendment) Act, No. 9 of 2018. The Act bans international arbitration as a method of resolving investor-state disputes. Public Private Partnership agreements will be governed by Tanzanian law and subject to local arbitration under the arbitration laws of Tanzania.
Another significant reform was done by the government by terminating its bilateral investment treaty (BIT) with the Kingdom of the Netherlands. The government gave the Dutch government a notification of its intention to terminate the treaty before the 1 October 2018 deadline when the treaty was set to expire on 1 April 2019. It is unclear whether this move was directed only towards the Netherlands BIT or whether the government will also terminate all its remaining BITs.
In July 2017, Parliament passed three pieces of legislation that introduced significant reforms to the legal and institutional framework governing oil, gas and mining sectors. These are the Written Laws (Miscellaneous Amendments) Act 2017, the Natural Wealth and Resources (Permanent Sovereignty) Act 2017 and the Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act 2017.
These laws are aimed at safeguarding the nation against exploitation of its mineral resources. However, these legislation outrightly diminished foreign investor appetite in these sectors.
For instance, the Natural Wealth and Resources (Permanent Sovereignty) Act 2017 prohibits proceedings in foreign courts and tribunals and rule out any arbitration clause that makes reference to international arbitration bodies as well as the application of foreign laws to dispute. Judicial bodies or other bodies established in Tanzania and the application of Tanzanian laws are deemed to be incorporated in any development agreement with the government or publicly funded projects.
What triggered the government’s decision to review international arbitration is that, Tanzania has appeared as a respondent before international arbitration tribunals for violating its investment treaty obligations. In most cases, the government was found liable and paid large compensation to foreign investors.
As an example, Tanzania went through a costly, difficult and only partially successful arbitration with an investor in the water sector (Biwater Gauff arbitration). This arbitration was based on a BIT with the UK and negatively affected the general take on the BITs in Tanzania.
Lack of legitimacy
Tanzania has raised concerns about the traditional investor-state dispute settlement system including lack of legitimacy and transparency. Tanzania has also complained that the system allows foreign investors to challenge legitimate public welfare measures of host states before international arbitration tribunals.
Tanzania is concerned about its sovereignty as international arbitration discouraged governments from adopting regulatory measures aimed at promoting public policy objectives (Biwater Gauff arbitration).
With the recently enacted legislation, the largely outdated Arbitration Act which was originally enacted in 1931 is in dire need of reforms necessary for creating an able robust machinery of alternative dispute resolution in a global competence capacity.
Moreover, the government needs to review its investment policies and amend all the relevant laws to be in line with the government’s new policy on international arbitration. The government should perhaps terminate BITs that have reached their end date and enact a domestic legislation as the primary mechanism for protecting foreign investors. The government may also offer its partners the possibility to renegotiate and develop a Tanzanian Model BIT as the basis for any new agreement. Further, the government needs to also highlight areas of institutional weakness that need to be addressed in order to realise its mission.
In conclusion, Tanzania’s experience in overhauling its investment regime is far from complete. The long-term effects of this new policy on international arbitration cannot yet be assessed.
It is too early to tell whether the government met its objectives or equally, if the new policy will impact foreign investment flows. However, important lessons can be drawn from the experience so far.
Aisha Ally Sinda is Senior Associate, Bowmans Tanzania