The Tanzanian government recently disbursed $30 million (TZS 76.5 billion) to Winshear Gold Corp as part of an out-of-court settlement, resolving an investment dispute with the Canadian company. Winshear had initiated legal action at the International Centre for Settlement of Investment Disputes (ICSID), seeking approximately $100 million in damages resulting from the Tanzanian government’s cancellation of its mining retention license.

Opting for an out-of-court settlement, the Tanzanian government aimed to protect its reputation as an investment destination and avoid the protracted legal process that would consume valuable time and resources. Meanwhile, Winshear, after deducting its legal costs, netted $18.5 million from the $30 million settlement.

Background: A Shifting Approach

Tanzanian President John Magufuli’s tenure, spanning November 2015 to March 2021, witnessed an aggressive stance against foreign investors whom he accused of exploiting the nation’s natural resources. Driven by a nationalist fervor, he implemented significant amendments to the country’s mining laws, including the retroactive legislation of 2017 that invalidated mining retention licenses.

These actions contradicted Bilateral Investment Treaties (BITs) signed by Tanzania with various foreign countries. These treaties typically safeguard investors’ rights and assets, including mining retention licenses, by prohibiting expropriation. Under the BITs, foreign investors can take their disputes with Tanzania to international arbitration tribunals like ICSID, whose decisions are legally binding.

The hasty cancellation of mining licenses by Tanzania led several foreign investors to invoke the BITs and sue the country at ICSID. It’s highly likely that Tanzania will face unfavorable outcomes in these cases, incurring substantial penalties and legal fees.

Outlook: A Prudent Pivot

Prof. Abdulkarim Mruma, a prominent figure in Magufuli’s economic crusade against foreign mining companies, appeared as an expert witness for the Tanzanian government at ICSID. Nevertheless, he faced a rigorous cross-examination by Winshear’s legal team.

Tanzania’s abrupt revocation of mining licenses without due consideration for pre-existing BITs has proven costly. Multiple similar cases filed by foreign mining companies remain pending at ICSID, and Tanzania is expected to face more unfavorable verdicts, incurring substantial legal expenses.

The most sensible approach for the Tanzanian government would be to mitigate losses by settling out of court with the claimants to expedite dispute resolutions. Under President Samia Suluhu Hassan, Tanzania has adopted a more investor-friendly approach to attract foreign investors back to the country, in contrast to her predecessor’s confrontational stance.

While Magufuli’s intentions of maximizing Tanzania’s benefits from its mineral wealth were commendable, the execution of this vision left much to be desired.

Key Takeaways

• Unintended consequences often arise from hasty actions.
• It’s essential to negotiate before taking drastic measures.
• In life, outcomes are a product of negotiation, not entitlement.