Siverdale Farm Case: Is Tanzania Scaring Investors?

Published on 18th July 2011

“You should never publicly accept that corruption is there and you are going to accept it. You do not; you fight against it and you try to ensure that you have the sort of programmes that prevent it happening ……. a constant theme of any aid policy and foreign policy to make certain that we are not supporters of it and we are opposing corruption where we find it.” Lord Jay of Ewelme:  The Select Committee on Economic Affairs 5th July 2011

On the 19th of July 2011, the International Development Committee held a public evidence session where officials from the Department for International Development (DfID), BAE Systems and the Serious Fraud Office gave oral evidence on the future of £29.5 million that BAE Systems agreed to pay for the benefit of the people of Tanzania in settlement of charges arising from the sale of an air traffic control system.

Pressure is being brought to bear on the British Government to return these monies direct to the Tanzanian Government (monitored by DfID) as opposed to non-governmental organisations. The BAE monies should not be returned directly to the Tanzanian government.

I further argue that some of DfID’s own funds are misused in Tanzania, and that the Department may not be able properly to account for funds returned from BAE. “DfID puts a lot of money (and confidence) in general budget support. To the extent that the budget is the victim of looting and waste, then DFID money is wasted pro rata.”(1)

Corruption is endemic in Tanzania. Professor Robert Picciotto of Kings College London recently stated to the House of Lords Economic Affairs Committee  that “...building the capacity of the state has proven to be very important, precisely to create the market institutions, the rule of law and the protection of property rights on which the private sector depends.”  Despite massive aid to Tanzania, our own experience belies that government’s commitment to upholding the rule of law, particularly where land and property rights are concerned.

What happened to us in Tanzania was brutal and facilitated by the state. The rule of law in Tanzania clearly failed us.  Our case and others demonstrate a fundamental problem with access to justice and the protection of human rights in Tanzania.

This view is supported by the 2009 Human Rights report produced by the Tanzanian Legal and Human Rights Centre. In 2009 Transparency International (East African Bribery Index) named the Tanzanian judiciary the fourth most corrupt institution in the East Africa Region (Kenya, Tanzania & Uganda) and the 2010 US Department of State Human Rights Report declared the Tanzanian judiciary to be “corrupt and inefficient.”  The 2009 Freedom House country report on Tanzania found that in cases involving the adjudication of private property rights (as in the Silverdale Farm case) the judiciary could not be relied upon to uphold the rule of law and that the interests of the economically powerful and politically well-connected would take precedence.

There are other numerous credible academic studies on the state of corruption in Tanzania, including those published by the DfID Africa Power and Politics Programme and in particular the study published by Brian Cooksey entitled ‘Public goods, rents and business in Tanzania.’ 

The U4 Anti-corruption Resource Centre cites the Tanzanian Auditor General saying that no less than 20% of government expenditure is lost to corruption in Tanzania, and it is clear that corruption is getting worse, not better. Tanzania has fallen 23 places in Transparency International’s Corruption Perception Index in the last four years (placed 93rd in 2006 to 116 in 2010 out of 178 countries). Yet there is no evidence of the government’s determination to tackle corruption. Not one senior official has been charged or imprisoned for corruption. The Tanzanian government has done nothing to bring those accepting monies in Tanzania in the BAE case to justice.

The question arises why the Tanzanians insist upon the return of money from BAE Systems directly to government. There is no shortage of resources in Tanzania and if the government wishes to raise revenue, it can do so easily through a more efficient local taxation system. A good example is in the mining sector. A study (‘Running with two legs: Why poverty remains high In Tanzania and what to do about it’ written by Lars Oberg and Amerakoon Bandara in May 2011, McCulloch Professor of Economics, Dalhousie University, Nova Scotia, Canada, and Economics Advisor, UNDP, Dar es Salaam, respectively) argues that if corporate tax had been paid on the 2010 revenue of Barrick Gold at the US Federal rate of 35%, the monies raised would have been in the region of 225 billion Tanzanian shillings, sufficient to fund a universal pension fund of all Tanzanians over the age of 65 at a rate of 10,000 Tanzanian shillings a month.

Clearly this amount of money could be spent in a number of ways with significant anti-poverty impact. A question arises why it has not been. Given the extent of serious corruption in Tanzania, it would be naive to suggest that DfID could ensure that BAE monies paid to the Tanzanian government were properly spent.

Tanzania seeks foreign direct investment yet it has failed to create an appropriate environment. That failure necessarily reduces the impact of UK and other donor aid in promoting economic stability and reducing poverty. This submission is supported by the aforementioned study by Brian Cooksey which found “the quality of the country’s infrastructure and economic regulation are among the major determinants of the investment and business environment facing local and external investors, and the rest of the economy, which is largely rural and informal.”

In support of my submission, I particularly (but not exclusively) refer the Committee to our case in Tanzania known as the Silverdale Farm case. It is a case that should cause deep concern to members of the Committee and the British government.  It illustrates the flaws in Tanzania’s approach to foreign investors, failings in governance and the rule of law and Tanzania’s refusal to respond properly to official representations made on our behalf. I also refer the Committee to the reference to the Silverdale Farm case, by Sir Edward Clay in evidence to the Lords Economic Affairs Committee on 5th July.

In 2004, my husband Stewart Middleton (a consultant agronomist with over forty years of experience in small holder farming in Africa) and I invested in Tanzania. Between us, we have more than seventy years experience of living, working, and farming in Africa.  We purchased a 45-year lease to Silverdale & Mbono farms, situated in the Hai District of the Kilimanjaro Region.

My husband strategically planned the rehabilitation of the farms to optimize their profitability and sustainability with a comprehensive agribusiness plan. At the heart of his plan was his desire to rehabilitate the property into a sustainable and profitable operation, to train and develop a skilled workforce that would persist long after his stewardship of the land. His many years of experience in developing and managing farming projects within complex social, legal, and regulatory environments in developing economies in Africa and elsewhere made Stewart the ideal candidate to revive the property.

Within the first six months, Stewart’s farming skills, significant financial investment and the creation and management of a dedicated staff, transformed the farms from derelict and commercially-unproductive  land  into a productive farming operation employing over 150 Tanzanians from the local community; growing and exporting more than eight tons of fine green beans to Europe weekly during harvest; and the first farms in Tanzania to earn EUREPGAP accreditation, a valuable farm classification that would allow us  to tap into the profitable European Union market.

We purchased the lease to the farms from Benjamin Mengi, brother to Reginald Mengi, an influential media personality in the national and pan-African business community. The purchase of the lease complied fully with the laws of Tanzania and no court has set the sale aside.

Mr. Reginald Mengi sits on boards of international committees and has acted as the Chairman of Tanzania’s National Board of Business Accountants and Auditors, Chairman of Tanzania’s Chapter of the International Chamber of Commerce, and as Chairman of the Tanzanian Chapter of the Commonwealth Press Union. He is also a member of the Board of Management of the Commonwealth Business Council and sat on the Blair Commission for Africa.

One year after the assignment of our lease, Benjamin Mengi demanded it back, stating he had not been paid in full.  In fact, he had signed a receipt for the monies. When we refused to return the lease, he stated that he would drive us out of Tanzania by any means, “cut to pieces in a coffin, if necessary” – a statement he made in front of the Regional Police Commander for the area.

A four-year campaign of violence and harassment was then unleashed against us, facilitated by the police and judiciary and involving a number of state institutions. This included:

•The refusal of the authorities to register our lease or recognise our Deed of Assignment;
•The destruction of commercial contracts;
•Violence to, and the imprisonment of, our key operational staff; and
•The repeated arrest, and ultimate imprisonment, of my husband on trumped-up charges.

A most destructive dynamic in this campaign was Mr. Mengi’s use of the courts and judiciary to engage us in years of costly and vexatious litigation within a corrupt legal system, which crippled us financially and emotionally.

Former UK government ministers, Lord Malloch Brown and Margaret Becket, together with high profile business leaders and the wife of former UK Prime Minister Tony Blair, Cherie Blair, have all raised this case with President Kikwete. On each occasion, President Kikwete has given his assurances that the rule of law would be applied to the case.

After five years of effort by the Foreign and Commonwealth Office and successive British High Commissioners to Tanzania, in June 2009 the Tanzanian government stated that we forged the lease to our farm, did not pay for the assignment of it, were not bona fide investors in Tanzania and had fled the country due to a court judgment against us. The person who issued that particular statement was former Tanzanian High Commissioner to the UK, now Tanzania’s Ambassador to the United States, Ms. Mwaindi Majaar.

The fundamental issues our case illuminates are corruption and abuse of law. A simple choice faces the Tanzanian government: to support the rule of law and protect the lawful interests of bona fide investors, or to facilitate criminal behaviour, as in our case.

Albeit on a small scale, we had the opportunity to provide truly sustainable development in Tanzania and to improve the lives of the poor. We fled the country in 2008 as a result of threats to our lives and the presence of armed bandits on our farm with the loss of our entire investment. Benjamin Mengi then invaded the farms, broke into our house, arrested our remaining staff and stole what remained of our property. The lease to the farms is now being offered up to another investor and we are being treated as if we never existed in Tanzania.

Our treatment is not an isolated phenomenon. Harassment and intimidation, including physical force have become more common in Tanzania. The authorities’ failure to protect legitimate rights to property and personal security encourage the politics of envy and a growth of lawlessness.

As recently as 15th July 2011, rioters have turned on the Asian community in Mwanza in Northen Tanzania. The Asians who were attacked spoke good Swahili and were born and brought up in Tanzania, where some Asian families have been in the country for more than 150 years. Buildings were attacked and at least two vehicles were set ablaze with several others stoned, including a fire-fighting truck. Angry youths roamed the streets and stoned numerous buildings occupied by Tanzanians of Indian origin. The Hindu temple windows were not spared as youths, mostly teenagers, made sure that anything owned by the Asians was destroyed. Despite the deployment of riot police, the onslaught on traders of Asian origin continued unabated and many were attacked physically while their shops were looted. (2)

Such behaviour is becoming more common in Tanzania. It abuses the human rights of people in the country - rights to which all are entitled, whether citizens or residents - and, holds back a country where extreme poverty is endemic, despite the high levels of aid donated to the country and high economic growth. The memory of Amin’s Uganda resonates; can we really afford to ignore such abuses?

I respectfully suggest that HMG could promote the purposes of its aid programme by pressing for Tanzanian to extend to investors, domestic and foreign, the protection of the law and to create an environment conducive to commercial confidence. Meanwhile, because sufficient doubt exists about the fiduciary risks involved in funding the Tanzanian government and about DfID’s ability to monitor them it would be safer and more effective to return the BAE monies not direct to the Tanzanian government but to NGOs.

The Tanzanian poor deserve better of their own government and of donors. Abuses and failures of governance hit them harder than anyone. I urge the Committee to recall Thomas Rainsborough’s words in 1647: “The poorest he that is in England hath a life to live as the greatest he”. Our Silverdale Farm case is neither special pleading nor unique: development   will not change the lives of the very poor until such time as corruption is taken seriously in Tanzania both by the Tanzania government and by donors. “It is unfortunately the case that the more you dig, the more you find. The question is do we have the motivation to dig?” (3)

(1) Public goods, rents and business in Tanzania.
(3) Sir Edward Clay: The Select Committee on Economic Affairs 5th July 2011.

By Sarah Hermitage

Sarah Hermitage is a qualified solicitor and British Investor.

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