The 2022 Tanzania Foreign Exchange Regulations And What It Means For Traders And Investors In Tanzania And The EAC?

• Published date: 02 February 2023
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Securities
• Law Firm: Shikana Group
• Author: Ms Amne Suedi

The Tanzania Foreign Exchange Regulations, Government Notice No. 294 published on 13/5/2022 (the "Tanzania Foreign Exchange Regulations") are creating quite some noise in Tanzania amongst traders and investors. Given the efforts that the government of Tanzania has been undertaking to lure foreign investors to Tanzania (#RoyalTour) and reassuring them of a conducive and easy business environment, the regulations come as a surprise since they seem to somehow contradict some of these efforts.

Tanzania being a member of the International Monetary Fund (IMF) has the obligation under Article VIII of the International Monetary Fund Articles of Agreement to enable currency convertibility for current transactions'goods, services, travel, interest, and dividend payment and this is a condition of its membership of good standing. The Articles of Agreement remain silent with regards obligations of Member States and capital accounts. While the Tanzania Foreign Exchange Regulations do not prohibit current account transactions, the government has added Non-Tariff Barriers ("NTB") making it more bureaucratic and therefore dissuasive to engage in certain types of transactions. I am going to focus on three areas: investment, trade and the regional integration and the implications on these areas that the Tanzania Foreign Exchange Regulations has.

Foreign Direct Investment

Foreign Direct Investment is expressly referred to at Regulation 24 (2) which prohibits Equity to Debt Swaps. Equity / Debt swaps is a type of financing whereby specified class shareholders are given the right to convert their stock for a pre-determined amount of debt in the same company. The conversion is usually into corporate bonds. While an investor gets the chance of receiving bond payments in the form of yield interest rates monthly, it takes away the ownership /equity that they have in the company. This is method of financing that allows the company to make a merger for example or engage in other business activities without diluting the share price / share capital is prohibited in Tanzania

On shareholder dividends and profits and repatriating the same outside of Tanzania, Regulation 17 provides for a mechanism of submitting audited financial statements, board resolution with approval from directors or shareholders for payment of dividends.

With regards to inter company loans or loans that a foreign investor may take from outside of Tanzania, the known mechanism of registering the loan at the Central...