CHAPTER ONE
INTRODUCTION TO INVESTMENT LAW
You should be familiar with the following areas
- Definition of Investment Law
- History of Investment Law
- Nature of Investment Law
- Sources of Investment Law
1.1 DEFINITION OF INVESTMENT LAW
1.1.1 International Law on Foreign Investment
International law on Foreign Investment ay be defined as a set of rules that govern international investment. International law on foreign investment has been and is being shaped by on interplay of various economic, political and historical factors. It is generated by the eventual resolution of conflicting national interests. The interests of capital-exporting states have clashed with those of the capital-importing states. The international law on foreign investment is a resultant resolution to such conflicts. It is a field by which economic theories, political science and related areas have helped to shape the arguments in the field
1.1.2 National Investment
Is a commercial or business activity. Business activities are governed by Commercial Code/law. Commercial law cuts across both the law of obligations and the law. of property. That means commercial law includes some part of the law of obligations and the law of property. For instance, the transactions of business in general and investment in particular require the application of the law of contract since it involves contractual transactions. Properties are the subject of contracts in investment.
1.2 HISTORICAL BACKGROUND OF INVESTMENT LAW
1.2.1 During Capitalism
Throughout the history of capitalism, investment has been primarily the function of private business; during the 20th century, however, governments in planned economies and developing countries have become important investors. Before the 1930, investment was though to be strongly affected by the growing rate of interest, with the rate of investment likely to rise as the rate of interest fell. Since then, empirical investigation has shown business investment to be less responsive to interest rates and more dependent on business men’s expectations about future demand and profit, technical changes in production methods, and the expected relative costs of labour and capital. Foreign investment, as one form of investment, was necessitated to ensure raw materials for productions in the Western states continued. At the time of colonization, resources were transferred from colonies to the metropolitan powers so that they could be converted into manufactured products or used to fuel the industries in these states. In the earlier stages, the petroleum sector was the most prominent sector for foreign investments. At that time, concession agreements were used to tie up resources for foreign investments.
As time went, on the concession agreements ceased to be the norm in investment and were replaced by the production sharing agreements. These agreements reflect the shift in the power equations that have taken place within the investment, particularly in oil industry. Indonesia was a pioneer in the field of devising new arrangements for the oil industry. Such a shift was aided by the formulation of international law doctrines such as the doctrine on the permanent sovereignty over natural resources. The doctrine of the permanent sovereignty over natural resources has been translated into national legislation. Thus, constitutions and foreign investment legislation incorporated the doctrine. It was also possible to draft investment contracts that ensure the host state having greater control over the process of the exploitation of the mineral resources. As a result of this development, it was recognized that host states have the power to control their natural resources. Thus, international agreements which have provided significant rights for investors were began in 1959.
1.5 HISTORICAL BACKGROUND OF LAW IN TANZANIA
Tracing back the history of Investment in Tanzania during colonial period with reference to the article written by Dr. Honest Prosper, all about what colonial did was nto colonise but investment perspective they just come and established industries, plantations and colonial labour.
It was the time where British and Germany what industries were introduced just factories that aimed to feed their metropolitan industries, in other words called processing industries. For example, Tanga plantation and Kilimanjaro.
During independence, Tanganyika inherit colonial laws like Investment Act, where most of colonial master use to run their business. Nyerere concentrate much on national plan system hence most of industries were controlled by the government.
At the time of Arusha Declaration, the government declared that all major means of production and other activities should controlled by government hence made poor production bring up to economic crisis.
On Mwinyi regime 1985 allow liberalization policy to operate hence most of investment were in form of Foreign Direct Investment. The year 1990s there was policy of investment which able to enact investment law 1997. The said law was revised in 2002 and it was named as Investment Act Cap 38 R.E 2002
1.6 NATURE OF INVESTMENT LAW
1.6.1 It Defines Important Terms like Investment and Investor
International investment agreements are international investment law that define these terms. National laws devote certain provisions to define investment and investor.In so doing, the investment law regulates investment. For example, many international agreements define investment as something established according to the laws of the host country. The main purpose of such definition is to ensure that investment has been properly registered and licensed in accordance with the laws of the host country. As was have discussed earlier, investment law classifies investment in to varies categories, such as foreign direct investment, activities, and forms of enterprises. It also includes ownership restrictions and related issues.
1.6.2 Admission and Establishment of Investment
The investment law regulates the entry of foreign investment in a host country. Each state may wish to restrict investment in certain sectors of the economy to the state or to domestic investors. Investment law puts requirements to establish enterprises to undertake investment activities, and forms of enterprises. It also includes ownership restrictions and related issues.
1.6.3 National Treatment
A host is required by international investment law to treat foreign investors in the same manner as national/domestic investors. However, the host country may not treat foreign investors equally with domestic investors. It is worth noting that a customary international law does not necessarily require states to extend national treatment to foreign investors. Such national treatment is provided by bilateral investment treaties or/and national laws.
1.6.4 Guarantees
Investment law provides guarantees to investor. International law is aimed at guaranteeing foreign investors. History has shown nationalization and expropriation of foreign direct investment. Thus, customary international investment law guarantees investors against those and other forms of expropriation of investment.
1.6.5 Environmental Issues
Today, it is realized that economic activities are closely linked to the protection of environment. Thus, investment treaties have begun to include provisions addressing environmental protection.
1.6.6 Labour Issues
The inclusion of labour provisions in investment treaties is growing although they are always included. The International Labour organization’s Tripartite Declaration of Principles Concerning Multinational Enterprises (1977) and the DECD’S Guidelines on Investment and Multilateral Enterprises (1976) are the two international agreements that address labour issue.
1.7 SOURCES OF INVESTMENT
1.7.1 Sources of International Investment
Article 38(2) of the statute of the International Court of Justice (ICJ), treaties, customs, general principles of law, judicial decisions and writings of scholars are sources of international law.
1.7.1.1 Treaties
There are two categories of treaties; Bilateral and Multilateral treaties. Bilateral treaties provide certain more comprehensive statements of treatment which will be accorded to investment by the parties. The same rule could be repeated in a number of similar treaties among different nations, and such repetition could create international law on foreign investment.
Multilateral treaties evidence an acceptance of a principle as international law by parties to the treaty. Therefore, multilateral are sources of international law. However, there are no relevant treaties that furnish a comprehensive code of law on foreign investment.
1.7.1.2 Custom
A widespread custom expresses an opinion juries within the international community, and it is a source of international law since the principle involved in the custom is obligatory. For example, it is general rule of custom to pay compensation where foreign property is nationalized or expropriated.
There is a view that principle contained in the General Assembly resolutions constitute “instant customary law” in that they are evidence of opinion juries of the international community. On the contrary, there is a tendency to dismiss the norms that are incorporated in those resolutions as “soft” law or as lex ferenda. It is argued that they are only expressions as to what the law ought to be in the future.
The General Assembly resolutions accepted the state sovereignty since the birth of a system of state based on territorial sovereignty. Thus, the state’s sovereign power to control events political, economic or otherwise in its territory is recognized according to this principle. Consequently, one can argue that the resolutions of the General Assembly establish an economic sovereignty of states that is applicable to foreign investment.
1.7.1.3 General Principles of Law
General Principle of law are recognized as a source of law in general, and investment law in particular. However, authorities accepted general principles of law on a limited manner. On the other hand, many others argue that general principles of law is a sources of international law on foreign investment. For example, the payment of full compensation where investment is expropriated is based on the general principle of law on unjust enrichment. In addition, notions of equality are also applicable as general principle.
Arbitration tribunals apply the general principles with regard to investment contracts. The general rules that are used by tribunals have a role in shaping rules in the area of foreign investment protection. However, the tribunals are accused of tending to favour investment protection rather than promoting the interests of host states.
We have seen that general principle of law is source on foreign investment. However, general principles of law are weak norms. “They cannot resist norms proceeding from sources which rely on consensual processes among states
1.7.1.4 Judicial Decisions
Judicial are a source of international law. For example, the decisions of International Court of Justice (ICJ) have had an immense influence on the shaping the principle of international law. Arbitral awards are also decisions made on disputes arising from foreign investment transactions. Thus, the decisions could be used as source of international law on foreign investment . Such awards are made unilaterally, and their role is diminished.
However, it is important to note that the decisions will have influence on foreign investment protection. The arbitrators/ Judges will use literature that could also apply to other similar types of disputes. Therefore, decisions are used as sources of international law on foreign investment, but they are taken as subsidiary sources.
1.7.1.5 Writing of Publicists
Like decisions, writings of highly qualified publicists are subsidiary source of international law. There was a tendency to accept only writings of “civilized nations”. This could be unfair. However, the problem is that the writers from the host states tend to naturally favour the interest of the host states while scholars of capital exporting states tend to favour their states.
1.7.2 Sources of Investment Law in Tanzania
1.7.2.1 The Constitution of United Republic of Tanzania (Cap 2 as amended from time to time)
The Constitution of United Republic of Tanzania, 1977 is the mother of all laws of the country. It has set up an independent judiciary, among other organs of the state and does recognize the sacred right of individuals to acquire and own property.
1.7.2.2 Statutes
(a) The Tanzania Investment Act [Cap 38 R.E 2002]
This is an act to guide investment activities in Tanzania, to provide for more favorable conditions for investors. It provides definitions for inter alia local investor, foreign investor and local capital. This Act does not, in terms of section 2, apply to:-
- Investment in mining and oil exploration currently covered under the Petroleum (Exploration and Production) Act [Cap 328 R.E 2002] and Mining Act (Act No 14 2010).
- Investment in Zanzibar, which are administered under a separate legislation applicable in Zanzibar only;
(b) Capital Market and Securities Act [Cap 79 RE 2002]
This Act provides for establishment of Capital MARKETS AND Securities Authority (CMSA) for the purpose of promoting and facilitating the development of capital markets and security in Tanzania.
(c) Banking and Financial Institutions Act, 2006 (Act No.5 of 2006)
An act intended to harmonize the operations of all financial institutions in Tanzania, to foster sound banking activities, to regulate credit operations, and provide for other matters related to these purposes.
(d) Bank of Tanzania (BOT) (Act No.4 of 2006)
The Act expressly specifies functions and objectives of the regulatuion and supervision of banks and financial institutions in Tanzania.
(e) The Land Act [Cap 113 RE 2013]
The Act expressly specifies functions and objectives of the regulation and supervision of banks and financial institutions in Tanzania
(f) The Village Land Act [Cap 114 RE 2002]
Provides for the management and administration of land in villages, and related matters.
1.7.2.3 Judicial Decisions
The decision of High Court and Court of Appeal in Tanzania, provide legal principle which will help to regulate investment law in Tanzania.
1.7.2.4 Multilateral and Bilateral Agreement
The treaties where Tanzania ratify hence binding when the disputes arose. For example Bilateral Agreement Between Tanzania and China. f0wbVRw)tp�{�2