Foreign direct investment in Tanzania : implications of bilateral investment treaties in promoting sustainable development in Tanzania

Abstract

Many governments in developing countries including Tanzania have embarked upon an ambitious effort to conclude bilateral investment treaties. Bilateral investment treaties (BITs) are currently used as a famous means for establishing the legal framework for foreign investment in the world. BITs have been entered to by Tanzania mostly to improve the foreign investment climate and hence attract more foreign investment. Foreign investors are often worried about the quality of host countries institutions and enforceability of the law in developing countries. As a result, BITs guarantee them certain standards of treatments that can be enforced through investor state dispute settlement in international tribunals. Developing countries conclude BITs and accept restrictions on their sovereignty in the hope that the protection from political and other risks lead to increase in FDI flows. BITs aspire to protect, promote and in some instances to remove obstacles to foreign investment flows without looking at their implications on sustainable development. The purpose of this research is to examine the BITs framework in Tanzania, explores the increasing persuasiveness of these agreements in promoting FDIs and their impacts upon sustainable development. Sustainable development here refers to development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. The thesis tries to look at what BITs say and identifies a number of key emerging development linkages and their implications on sustainable development. The thesis demonstrates that some BITs provisions have been seen to have disturbing and potentially worrying legal and policy implications for host states. Most BITs offer an avenue for dispute settlement mechanism that permits foreign investors to take host states to international arbitrations in cases where the investor alleges that the treaty’s provisions have been violated. As will be seen in this paper, the number of treaty based arbitrations has enormously increased in recent years. One of the main findings of the research is that, BITs are not mutually beneficial agreements and are one sided in favour of capital exporting countries. They are unbalance and can hardly provide the basis for a durable investment regime though they are reciprocal in appearance. Despite the fact that they establish equal rights and duties for both sides, capital flows from one side only. Thus, it is argued in this thesis that BITs lack clarity and consistency as benefits will accrue to the capital exporting countries. The thesis further argues that Tanzania faces some challenges regarding the provisions of BITs already concluded. Foreign investors are increasingly aware of the protection available under BITs, and increasingly inclined to invoke those rights in the face of undesirable government initiatives or proposals. The dissertation concludes that BITs will harbour important consequences for Tanzania and may have significant adverse implications if not well negotiated. It further reveals that BITs are not efficient in promoting sustainable development and there is a need for investment agreement to be balanced in a development dimension. Most of the treaties compare unfavourably with the model investment agreement drafted by the International Institute for Sustainable Development (IISD), and that the latter agreement provides a more development friendly template for such agreements. For that reason, Tanzania has to review its BITs so as to ensure that they are in harmony with the country’s broader social and economic principles for sustainable development.