Zanzibar revokes property lease for UK developer, sparking legal and investment woes

Othman Masoud Sharif. (Photo: Facebook)

By Erick Kabendera

15 Oct 2023

The Zanzibar government is being sued over the cancellation of the property development lease for the $1.6-billion Blue Amber Resort. Some fear this will hurt the region’s efforts to attract foreign investment and any court-mandated settlement will drain the government’s coffers and affect its ability to provide critical public services.

The Vice-President of Tanzania’s semi-autonomous Zanzibar archipelago, Othman Masoud Sharif, has criticised a decision by the government to terminate a British developer’s $1.6-billion (R30.3-billion) luxury villa project, which has resulted in the country being sued in an international court.

Sharif regrets that while the matter could have been handled differently, it could now become injurious to Zanzibar’s efforts to attract foreign investments, a critical contributor to the island’s economic stability.

Pennyroyal Ltd, the developer of the Blue Amber Resort, has filed a claim against Tanzania at the International Centre for Settlement of Investment Disputes (Icsid) for allegedly breaching its bilateral investment agreement with the UK, over the move to cancel its property development lease.

The first phase of Blue Amber Resort was under construction on Matemwe Beach when the Ministry of Lands revoked the project’s land lease in early 2022, which was soon followed by the suspension of the construction permit by the Zanzibar Investment Promotion Authority (Zipa).

Othman Masoud Sharif. (Photo: Facebook)

In an interview, Sharif criticised the termination of the project, noting it was a strategic investment expected to contribute significantly in the alleviation of poverty among the impoverished islanders. He also cautioned that the dispute could have dire consequences on Zanzibar's attractiveness for investment.

Sharif, from the ruling coalition opposition party, ACT-Wazalendo, said the termination of the project would taint Zanzibar’s reputation as among top attractions for foreign investors, primarily in the dominant tourism sector.

“There could have been a better way to mutually resolve any arising dispute instead of terminating the project entirely as this will affect the readiness and interest of investors from around the world to come to Zanzibar,” he told the Times.

The World Bank’s poverty assessment of Zanzibar in 2012 said despite its growth potential in the tourism sector, Zanzibar remained one of the poorest places on the continent.

The government awarded Pennyroyal leasehold for 441 hectares, where $55-million had been spent on the project, whose first phase was due to launch in December 2023.

Both the Lands ministry and Zipa could not comment on the matter when approached. Previously Zanzibar President Hussein Mwinyi had told a press conference that the termination of the project resulted from a land dispute.

Matthew Coleman of Steptoe & Johnson, which is representing Pennyroyal at the Icsid, said his client had unsuccessfully sought a mutual resolution with Zanzibar authorities before commencing international arbitration in July 2023.

“When we reached out in 2022, Tanzania responded, but is yet to follow through on the initial suggestion to pursue mutual means to end the dispute, even though I flew to the country for an in-person meeting. Pennyroyal therefore had no choice but to commence the international arbitration against Tanzania, in July 2023.”

According to Coleman, his client would press for compensation for the considerable losses incurred so far, a mutual settlement with Tanzania notwithstanding.

It is understood that the parties have each nominated an arbitrator, who have accepted their appointments. The hearing will take place in 2025 once the arbitrators have appointed the president of the Tribunal.

Ismail Jussa, a lawyer and politician in Zanzibar, said he was worried critical public services could suffer should public funds be diverted to pay any huge financial settlements arising from such investment disputes.

“Zanzibar’s economy depends on tourism, with high-end tourist properties among best sellers in the Isles. Confiscation of such investments by political-interest speculators for further expropriations is a form of corruption,” Jussa said. DM

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