Shamiza Ratansi, Managing Partner, ATZ Law Chambers: Viewpoint

Viewpoint: Shamiza Ratansi, Managing Partner, ATZ Law Chambers

With the introduction of new local content regimes, Tanzania has seen a recent overhaul in its natural resources industry. While not a new concept, the regulations extend beyond mineral licence holders and internal oil companies by imposing local content requirements on the complete supply chain. This means that all mining and most petroleum licence holders, as well as internal oil companies and their suppliers, must comply with the new rules regarding local ownership, procurement, employment, technology transfer, research and development, and other requirements.

Regarding the mining sector, rules are coupled with local participation regulations: companies holding a special mining licence are required to list at least 30% of their firm on the Dar es Salaam Stock Exchange (DSE); at least 5% of the participating interest in a company applying for a mining licence shall be held by an indigenous Tanzanian company; and the government shall hold at least 16% of company shares as a non-dilutable free carried interest, or up to 50% if a mining company has benefitted from tax incentives.

With regard to the petroleum industry, while all upstream licences are owned by the new National Oil Company, the Petroleum Act of 2015 introduced discretion for the Energy and Water Utilities Regulatory Authority (EWURA), the midstream and downstream regulator, when considering applications for licences. EWURA will promote the maximum participation of Tanzanians in every part of the petroleum value chain. This includes potentially requiring local companies – those that are at least 15% owned by Tanzanians – to hold a minimum of 25% of the participating shares of the licence holder. The introduction of the National Oil Company and National Mining Corporation is expected to put Tanzania on the map as an international investor, similar to Norway’s Statoil or Malaysia’s Petronas.

Local participation rules have been crafted to bring economic empowerment, skills transfer and increased job opportunities to Tanzanians in the natural resources industry. In September 2017 President John Magufuli noted that despite being the sole producer of the tanzanite gemstone, Tanzania receives only 5% of total revenues from the global trade of the jewel. Furthermore, with approximately 800,000 Tanzanian youth entering the labour force every year and an estimated 47% poverty rate in 2016, according to World Bank figures, promoting job creation and economic growth for citizens in local industry is crucial. Despite Tanzania being Africa’s third-largest gold producer, mining contributes just 3.5% to overall GDP. The government is aiming to increase this to 10% of GDP by 2025.

However, mechanisms must be put in place to ensure that the benefit of local participation comes into the hands of those needing it most; for example, by utilising employee equity schemes rather than divesting shares only to those who can afford to buy stakes in large entities. This is the policy reasoning behind listing requirements; although, the level of know-how required for investment on the DSE still means that many Tanzanians will not benefit from the local ownership requirements. In order to protect the spirit of the law, the relevant legislation also makes any trust arrangements illegal, thereby ensuring genuine local participation.

While in the African Development Bank’s “African Economic Outlook 2018” it was noted that protectionist sentiment could reduce investor confidence, curtail resource flows and slow growth, in reality many foreign investors see local content rules as in line with their own corporate social responsibility activities, provided that the law remains stable and is consistently interpreted. Many of the provisions of these new laws will require written guidance and practical interpretation by the relevant regulators, and it is hoped that the views of industry players and international best practices will be taken into consideration. Tanzania’s regulators, industry and lawyers will need to cooperate to resolve the uncertainties and assist in the goal of empowering locals through the development of the economy.