The construction industry in Tanzania is composed of a myriad of stakeholders and regulations.
In our next paper, we will talk about partnerships with the Government of the United Republic of Tanzania, joint ventures with various executive government agencies and the regulations and policies surrounding the Public Private Partnerships.
This article will look at the dynamics within the private sector of Mainland Tanzania and, our expertise being investment law in Tanzania, we will examine legislations in the field of construction that may impact foreign investors in Tanzania.
Like any developing economy, the informal sector which is comprised of mainly small to medium companies with a turnover of a maximum of Tshs 250,000,000, makes up a significant number of potential local partners that a foreign investor may have in Tanzania. Most legislations that regulate the professions in the construction industry contain a number of protectionist provisions in favour of the local professionals and companies in Tanzania (ie majority authorised/ voting shareholders should be citizens in accordance to the Tanzania Citizenship Act in Tanzania (Cap 357 RE 2002). Therefore, foreign investors can partner with local companies and professionals in Tanzania and get through the legislative hurdles more easily.
The construction professionals in Mainland Tanzania are the Contractors, Engineers, Architects all of which must register in their respective professional bodies namely the Contractors Registration Board (the "CRB"), the Engineer Registration Board (the "ERB") and the Architects and Quantity Surveyors Registration Board (the "AQSRB") in order to work in Tanzania.
The Contractors Registration Act 1997 and Contractors Registration Amendment Act No. 15 of 2008 provide that there are five (5) types of contractors recognised in Tanzania: building contractors, civil works contractors, mechanical contractors, electrical contractors and specialist contractors.
The CRB, in its policies, laws and regulations, differentiates between two categories of contactors: the local contractor and the foreign contractor. The foreign contractor at a premium fee can either choose a permanent registration and undertake as many contracting projects as possible as per its registration class or it can pursue the route of a temporary contractor, registered only to undertake one specific project.
The Business Names (Registration) Act Cap 213 as amended allows a local contractor to register its business name and trade as a sole proprietor. While this law does not explicitly prohibit foreigners from registering a business name and trading on the same, the practice in Tanzania shows reluctance in local authorities to allow foreigner to trade as sole proprietors. Hence a foreign contractor must register a limited company under the Companies Act. In order to meet some of the requirements for registration as a foreign contractor, a company must demonstrate that:
- It has the minimum technical qualifications and skills as prescribed by the CRB for the type of registration contemplated.
- It has the necessary experience and track record as prescribed by the CRB
- It has the necessary financials of the Company to be able to carry out a project
- Its professional and general conduct is such that it makes it a fit and proper person to be registered by the CRB; and
- It has the necessary plants and equipment for the work it intends to carry out.
A foreign company can apply for a temporary registration at the CRB by registering its company as a branch and obtaining a certificate of compliance allowing the foreign entity to trade in Tanzania. It must demonstrate a track record of performance as contractor prior to its entrance in the Tanzania market. Likewise, a foreign company can enter into a Joint Venture Agreement with a local contractor for the purpose of carrying out a specific project. However, in both these cases once the project is finished the Company must wind up and leave the country or opt for permanent registration if they wish to pursue more projects.
Foreign engineering companies or individual engineers can register as "temporary" however, unlike the contractors, this does not mean that there is a limitation in time or projects. The registration can be renewed for as long as the company or individual wishes to stay in the country and complies with the Engineers Registration Act 1997 as amended. The foreign company must have its principal engineer registered at the ERB as a professional and consulting engineer and the principal engineer must have practiced in a specialised engineering field as a registered engineer.
By law, foreign engineering consulting firms are required to grant the resident principal engineer a Power of Attorney to make all engineering decisions in Tanzania.
A foreign national wishing to be registered as an engineer in Tanzania must hold academic and professional qualifications from engineering institutions that are recognised by the ERB, must be registered as an engineer in his or her home country and must be employed in Tanzania by a registered company
Foreign architects are allowed to practice in Tanzania provided that they are registered in at the AQSRB and that they are registered architects in their home countries, that there is proof of experience as an architect immediately prior to moving to Tanzania and that they have a degree in architecture from a recognised university. Other conditions are that the individual is seeking for a work and residence permit. The foreign architect must be here for a specific project/ express purpose.
In the case of a foreign firm that has expatriates, the firm must demonstrate that the skills that the expatriates have are not available in Tanzania. Furthermore, the foreign firm must enter into a joint venture with local architect firm for the specific project that is to be carried out. The costs for registration of a foreign architectural firm or a foreign individual architect are significantly higher than a local architect/ architecture firm.
Tanzania is the second largest market for construction in Eastern Africa, following Ethiopia. The country's underdeveloped banking sector means that there is an opportunity for investors to come into the market and propose projects with their own financing from foreign financial services or banks, on top of donor aid or multilateral financial assistance. As such, project companies can choose their own contractors, engineers and architects however they must comply with the various registration bodies and legislations as discussed above. It is a pre-requisite that the firm which a project company wishes to work with is registered in Tanzania. By experience we have seen that, where investments in the construction industry are structured as joint ventures between foreign companies and local companies or where a company has taken as principal contractor, engineer or architect a qualified Tanzanians into the said company, the process for registration is smoother and less time consuming.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.