Paul Kibuuka (left) is a tax and corporate lawyer, tax policy analyst, and the chief executive of Isidora & Company.
Lilian Kyaruzi (right) is a corporate lawyer and director in Isidora & Company and an international development enthusiast.
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.
Also Read
Tanzania Communication Regulatory Authority hits telcos with Sh6bn fines
President John Magufuli beats property declaration deadline
Experts probe Fausta the rhino's death
Accountancy college opens support centre for graduates
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 Tanzanians.
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)
have 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 means 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 subsisted 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
(tax@paulkibuuka.com) is a tax and corporate lawyer, tax policy analyst,
and the chief executive of Isidora & Company.
*************************************************************
Lilian Kyaruzi
(law@liliankyaruzi.com) is a corporate lawyer and director in Isidora
& Company and an international development enthusiast.
No comments :
Post a Comment