February 22, 2019

Impact of the amendments to the Mining Local Content Regulations on banking operations

In this month’s Finance Briefing we review the effects of the amendments to the Mining (Local Content) Regulations, 2018 on the operations of commercial banks in Tanzania.

On 8 February 2019, the Mining (Local Content) (Amendment) Regulations, 2019 (the Amendment Regulations) were passed, which amend the Mining (Local Content) Regulations, 2018 (the Regulations). The Amendment Regulations amend the Regulations in a number of ways, but in particular there is one significant change that affects the banking sector.

In our finance briefing of January 2018, we looked at regulation 36 of the Regulations which stated that "a contractor, subcontractor, licensee or other allied entity shall maintain a bank account with an indigenous Tanzanian bank and transact business through banks in the country". The Regulations defined an 'indigenous Tanzanian bank' as a bank that has one hundred percent Tanzanian shareholding or not less than a majority Tanzanian shareholding.

Contractors, subcontractors and licensees, are defined as persons / entities that have entered into mining agreements with Tanzania, third parties to whom such persons have entered into mining contracts for mining operations, and persons granted licences to undertake mining operations, respectively. For the purposes of this Finance Briefing, we use the term 'Contractors' to mean contractors, subcontractors, licensees and other allied entities.

The Amendment Regulations, among other things, reduce how stringent the banking requirements were, as not many banks operating in Tanzania fall under the definition of 'indigenous Tanzanian banks', and therefore Contractors would have found it difficult to maintain a bank account with a bank that is fully Tanzanian owned / majority Tanzanian owned. Furthermore, banks servicing Contractors were required to restructure and potentially have to relinquish their majority shareholding if they were not already compliant with the Regulations.

Regulation 36 has now been amended by the Amendment Regulations in two ways:

  • it removes the term 'indigenous Tanzanian bank' and replaces it with 'Tanzanian bank'; and
  • it defines a 'Tanzanian bank' as a bank that is one hundred percent Tanzanian or has not less than twenty percent of Tanzanian shareholding.

This amendment is a welcome change and will likely aid in creating a better investment climate generally, and particularly in the banking sector as foreign investors / shareholders in banks operating in Tanzania would not have to surrender their majority shareholding. The Amendment Regulations also bring comfort to stakeholders as it evidences the fact that the Tanzanian Government is taking into account feedback received on the Regulations.

Clyde & Co Tanzania would be happy to assist with any questions pertaining to the Amendment Regulations. 

 

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