TanzaniaInvest interviewed Fayaz A Bhojani, Managing Partner of FB Attorneys; he shares interesting insight on Tanzanian legal framework and it’s relation with the investment process and business climate in Tanzania.
TanzaniaInvest.com : How would you assess the legal framework for foreign companies to enter Tanzania?
Fayaz A Bhojani : There is a reasonable legal framework in place in Tanzania. The Tanzania Investment Act provides for adequate protection for companies.
Tanzania’s political stability is seen as a good indicator of its investment climate and as long as this is sustained, Tanzania will continue attracting foreign companies.
The legal framework has its challenges, as is the case in other countries, but the high performance of the High Court Commercial Division has increased the speed with which litigation is disposed. In fact I would rate this Court as one of the best in the region. Other Court’s are trying to catch up but the Commercial Court is manned by very competent Judges who understand commerce well.
TI : How conducive is the legal framework for investments?
FB : I would say it is above average but can be improved. Attracting investments is not easy and there have been smaller companies that have misused exemptions and now that the bigger companies are interested in Tanzania, the very same exemptions are very sparingly being offered.
We must realize that the world has become borderless and every country is fighting hard for investment. With investment come exemptions, and as long as the investment is “real” in economic terms, and as long as the investment will have a multiplier effect on the economy, we should not shy away from granting exemptions.
It is true that exemptions in the past have been abused, but it is affecting the big players who want to enter the market now. Many of the smaller players enjoyed them, misusing them along the way. Now that we are seen as a good country to invest in, we should streamline procedures for exemptions and incentives.
We also need to make fast decisions on such procedures as the longer we wait, the greater the risk of the investor taking his money elsewhere.
TI : What about taxation?
FB : Some of our tax laws need to be changed. In the new amendment there is ambiguity and enough thought is not being put into the consequences of tax changes. For companies that are exempt, the Government should respect such exemptions instead of saying that “an agreement cannot override the law”, which we admit is true but why does the GoT sign agreements later to change the law to the detriment of the investor?
Whilst the Tanzania Revenue Authority (TRA) is doing its job interpreting the law as it stands, the coherence and synchrony between the Ministry of Finance, TRA and the sector ministries needs to improve. TRA will normally say “pay now and contact the Ministry of Finance to solve the issue” as it is a policy issue and they cannot take a call. Decisions are not taken fast enough and this is very frustrating for the investors.
A stable tax regime is critical for attracting foreign investors. This is what the country should strive for. The rule of 20-80 is visible here, where 20% of the companies are paying 80% of the taxes. The tax base is not growing fast enough and the TRA is still over reliant with the larger companies, interpreting tax statutes narrowly and raising tax bills without adequate information.
TI : In which sector of Tanzania’s economy do you foresee the greatest growth?
FB : We believe that the oil and gas sector will see the highest growth. It is a sector that has great potential, provided the right policies are in place. For example the VETA training institute in Mtwara on oil and gas training needs to be further uplifted so that it can provide world class employees to the sector.
The courses need to be at par with international courses with international teachers. If we allow this opportunity to slip, we might never get it again. The sector Ministry needs to monitor this extremely carefully to ensure that where possible local Tanzanians are employed. With the dozens of universities that have mushroomed, it is vital that not only jobs are created, but are filled by local Tanzanians.
It is true that the oil and gas companies are trying hard to look for Tanzanians, but most of them complain of not getting the right competencies, meaning we need to train our locals even further, faster and better.
TI : What are your Law firm’s Competitive advantages?
FB : We are a full service law firm. We however have specialized lawyers in the oil and gas, mining and tax departments. In these fields, especially mining and oil and gas, what is critical is not only understanding the law but the commercial side of the agreement or the law, as the case may be.
A science or math background is paramount without which a lawyer cannot appreciate the transaction. We believe we have both. Our talent pool is large and we have tapped into other markets as well from our office in Dar. We believe in providing practical solutions and not “thesis type opinions” that have the same conclusion as the introduction! We work with all the large law firms from around the world.
Our strength lies in combining the firm’s international standards with ‘on the ground’ contextual and business knowledge. Over the years, we have developed crucial relationships with the government and thus understand the best ways to work with them.
TI : What would you recommend to someone coming to Tanzania?
FB : It is critical that they first come and spend some time understand the local environment. The market here has many challenges but it is these challenges that bring the opportunities. The Tanzania Investment Centre is manned by excellent persons and they are very helpful. A lot of information is available there.
Our leaders and Ministers also have an open door policy for large investors. Understanding the tax and fiscal mechanisms of the country is another crucial part that must not be undermined. Proper tax and legal advisors are a key and needless to say, proper due diligence is vital.
TI : What do investors do wrong in Tanzania?
FB : Sometimes we hear of investors having put in millions of dollars without understanding the tax regime. Some have relied upon mere letters of comfort from Ministries to assume that they are tax exempt. Others forget to ask for exemptions and then start complaining later.
We have also seen companies purchasing local assets or shares without proper due diligence only to end up in Court as defendants on their first day in Tanzania. The Government cannot be blamed for the negligence of such investors.There are also companies that over negotiate with the Government and end up spoiling relations.
Above all, we have seen investors bringing in senior management who are not able to engage with the locals- gone are the days of a boss being sacrosanct. Tanzania has a challenging labour market, but as I mentioned earlier it is these challenges that bring with it the many opportunities that are around us today. I always tell investors that the ‘BIG MONEY’ is yet to be made in Tanzania.
TI : What would be your personal message to investors interested in Tanzania?
FB : I personally believe Tanzania has a great future. With the challenges listed above, I still believe the companies investing here will make good returns. Our President is pro investment and companies should come to Tanzania. Unless something goes drastically wrong, your investments are secure here compared to most other African countries. But please make sure you conduct proper due diligence, get proper tax and legal consultants, and spend time understanding the local scene.