Business Corruption

Companies intending to operate in Tanzania should note that corruption in relation to public procurement is very common. According to the US Department of State 2011, companies report that corruption exists in government procurement processes, and companies are generally recommended to use a specialised public procurement due diligence tool in order to mitigate the corruption risks associated with public procurement in Tanzania.

Officers of the Ministry of Public Works receive bribes in order to: give preferences in awarding tenders, accept raising costs of contracts in order to conceal the weaknesses of contractors and to approve payments. Town and district council leaders demand and receive bribes in order to approve and award tenders to private companies, to allocate land plots and market stalls, and to issue trading licences for unauthorised areas. Procurement of goods and services at the local level is reported to be more prone to corruption that at the central level.

According to Global Integrity 2010, in practice, companies guilty of major violations of procurement regulations, such as bribery, are not prohibited from participating in future procurement bids.

See more on procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Political Corruption

Freedom House 2010 reports that although public procurement procedures are designed to guarantee competition, the system remains opaque and disclosure of contract-related information can lead to legal action, especially within the extractive industries.

Tanzania has witnessed several corruption scandals related to public contracting. One of these was related to Tanzania's Central Bank (BoT) and concerned the construction of the Twin Towers in Dar es Salaam. According to an October 2009 article by ThisDay, the two senior officials at the BoT, Amatus Liyumba and Deogratius Kweka, were accused of misusing their authority and inflating the costs of the Twin Towers project, which ended up costing four times the value of a similar building in London or New York. Liyumba was charged with causing the loss of USD 153 million. Nine former members of the BoT board of directors and a former central bank lawyer were set to testify against Liyumba in October 2009. Subsequently, Kweka was released from police custody, while Liyumba was found guilty of abuse of office and sentenced to two years in prison in May 2010. In addition, in relation to this case, in 2011, two Tanzanian businessmen were found guilty of defrauding the Central Bank of over USD 1 million and sentenced to five years in prison each.

Another controversial corruption scandal was the Richmond scandal in 2006, which involved the Tanzanian government and a previously unknown United States based company, Richmond Development Co. (RDC). According to Global Integrity 2007, the former Prime Minister finalised the deal and granted the USD 172 million leasing contract to the RDC. The further investigation revealed that the RDC had no experience in the energy sector and was a 'mailbox company' which had no registered records in the United States. According to the report, the RDC had further passed the contract to Dowans Holding of the United Arab Emirates. The latter was reported to have allegedly pocketed USD 102 million from the government. As a resulting of this case, the Prime Minister and two other ministers resigned in February 2008.

In an October 2009 article The Guardian reports that after several years of investigation the British Serious Fraud Office (SFO) announced that it would seek to prosecute the British arm company BAE Systems over allegations of bribery in several countries, including Tanzania. According to a January 2007 article by The Guardian, BAE allegedly made two parallel agreements with Tanzanian middlemen concerning the sale of a military radar system to Tanzania. A conventional agency agreement was signed, under which BAE paid 1% commission if the deal went through, while BAE at the same time secretly paid a USD 12 million commission to another middleman. The commission represented 30% of the contract value, a percentage that is perceived to be questionably high. In February 2010, BAE pleaded guilty of dubious financial dealings before the SFO and agreed to refund the Government of Tanzania of USD 46 million. However, the Tanzanian Prevention and Combating of Corruption Bureau (PCCB) communicated in May 2010 that it was proceeding with its own investigation on the case.

See more on procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Frequency

World Economic Forum: The Global Competitiveness Report 2010-2011:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 3.1 on a 7-point scale (1 'very common' and 7 'never occurs').

- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 3.4 on a 7-point scale (1 'always show favouritism' and 7 'never show favouritism').

The World Bank & IFC: Enterprise Surveys 2006:
- 42% of the companies surveyed expected to give gifts to secure a government contract.

- The average value of a gift expected to secure a government contract is 3% of the contract value.