Tanzania once again battles against international investors

The continent of Africa is currently experiencing huge investment inflows from the international community.  We have recently seen a proliferation of conferences and summits across the world producing memorandums of understanding, investment promises and agreed deals.  From the Russia-Africa Summit at the Olympic Park in Sochi, the multibillion-dollar development that played host to the Winter Olympics in 2014, to the Tokyo International Conference on Africa’s Development (TICAD) in Yokohama in August, rising and established powers see the potential for sustainable investment in African economies.

But with the influx of private investment comes greater demand for international courts of arbitration.  The unstable and undemocratic nature of many African governments does not lend itself to a reassuring investment environment.  Plus, government policies can change quickly and therefore mediation is required.

This domain is often reserved for mining and extraction companies, the usual big players in these volatile corners of Africa.  Just this week, on 29 November, we heard the London Court of Arbitration (LCA) rejected attempts by mining giant BSGR to attempt to overturn an arbitration settlement in a case that dates back to the 1990s.

Earlier in the year news broke of Vedanta Resources’ launch an arbitration claim against the Zambian government over its attempt to liquidate Vedanta’s majority owned Konkola Copper Mines.  The dispute involving Africa’s second largest copper miner, though currently ongoing, has cast serious doubt over the ability of Edgar Lungu’s government to attract worthwhile foreign direct investment.

But as the increasing demand for investment in other sectors of African economies grows, so too will the types of potential challenges that will emerge for investors.  Take for example Tanzania.  Reports in the Italian media suggest an ongoing dispute there threatens to turn ugly.  The Friedkin Tanzania Companies, whose portfolio of investments include game reserves, luxury lodges, photo safaris, and Northern Air, an air charter company, is thought to be disputing unfair actions being taken by Tanzanian officials, including the seizure of passports from company directors, purportedly related to tax regulations imposed by the Tanzanian government. 

According to some accounts, Tanzanian officials have threatened to imprison Friedkin employees unless the company pays tens of millions of dollars in purported taxes and penalties.  Reports have suggested The Friedkin Group, headed by American philanthropist and conservationist Dan Friedkin, has been attempting to work with Tanzanian tax authorities to resolve the claims but thus far the government has failed to afford these long time investors little in the way of due process.

Unfortunately, this is not the first time this year an anti-business regulatory environment has been imposed in an East African country.  Earlier this year the Kenyan betting industry was decimated when the country’s revenue authority, the KRA, imposed harsh tax penalties forcing the two largest operators in the country, SportsPesa and Betin, to close.  This led to a resulting 2,500 direct job losses, though it is unknown how many businesses that relied on the betting industry were impacted.

A few weeks ago, the Kenyan Tax Appeals Tribunal ruled in favour of the betting operators, which may signal the start of these bookmakers returning.  However, the reputational damage the KRA has inflicted on the Kenyan business landscape remains to be seen.  Possible future investors will have no doubt been frightened by the hostile regulatory environment.

The potential for investment in Africa is huge.  International attitudes have shifted from viewing Africa as the basket case of the world to a breadbasket.  The impending population boom will see the continent grow by more than 2 billion people in the next 20 years.  A huge labour market will require jobs, and foreign investors will be keen to utilise this.  But as long as governments continue to pursue hostile regulatory environments, they will continue to push away any interest from outside their borders.  In this era of ‘fake news’, the public need to be made more aware of misinformation campaigns launched by undemocratic regimes against companies that provide thousands of jobs and millions in tax revenue.  For the time being, international arbitration seems to be the only safety net these firms can rely on.