Kenya Protests Tanzania’s ‘Criminalising Investments’ by Foreigners

The East African Community (EAC) is once again grappling with escalating trade tensions, as Kenya formally objects to new business licensing rules and tax measures introduced by Tanzania. Nairobi has labelled these new directives as discriminatory and a significant threat to the spirit of regional economic integration, raising concerns that they could “criminalise” lawful investments by citizens of EAC partner states. This latest development underscores the persistent challenges in fostering seamless trade and movement within the bloc, despite foundational protocols designed to ensure just that.

Trade and Industry Cabinet Secretary Lee Kinyanjui has voiced profound concern over Tanzania’s recently enacted Finance Act 2025 and the accompanying amendments to the Excise (Management and Tariff) Act 2019. These legislative changes introduce new excise duties and an Industrial Development Levy, set at rates of 10 and 15 percent respectively, which Kenya argues are unfairly imposed and undermine regional trade gains.

The core of Kenya’s objection, however, lies in Tanzania’s Business Licensing (Prohibition of Business Activities for Non-Citizens) Order 2025, which came into effect on July 28. This order explicitly restricts foreign participation in 15 specific business sectors, a move that has ignited a furious backlash from Kenyan businesses and policymakers alike.

The Spark: Tanzania’s New Restrictions and Their Immediate Impact

Tanzania’s new directive, announced by Trade Minister Selemani Jafo, aims to reserve certain economic activities exclusively for its citizens. The order prohibits non-citizens from engaging in a diverse range of sectors, many of which are typically dominated by micro and small enterprises. These include, but are not limited to:

• Salon operations: From hairdressing to beauty services.
• Tour guiding: A critical component of the tourism industry.
• Mobile money transfers: A burgeoning and highly accessible financial service across East Africa.
• Electronics repair: Essential services for a digitally advancing populace.
• Ownership of micro and small industries: Broadly encompassing various small-scale manufacturing and service ventures.

The immediate effect of this order is profound. While current license holders are exempt for the duration of their existing permits, the long-term implications are clear: non-citizen investors will be barred from entering or renewing licenses in these designated sectors. The penalties for non-compliance are severe, including fines, up to six months in jail, and the loss of visas and work permits, effectively forcing foreign entrepreneurs out of these markets.

Tanzania’s Trade Minister Selemani Jafo explained the rationale behind the ban, stating that foreigners had increasingly become involved in the informal sector and other areas that could and should be filled by Tanzanian citizens. This move has been largely welcomed within Tanzania, amidst growing public sentiment that foreign nationals, including Kenyans and Chinese, were encroaching on smaller, local businesses. This protectionist stance reflects a broader nationalistic economic agenda aimed at empowering local entrepreneurs and ensuring that the benefits of economic growth primarily accrue to citizens.

Nairobi’s Outcry: A Violation of Regional Spirit

Kenya’s Ministry of Investments, Trade and Industry (MITI) wasted no time in formally registering its strong disapproval. Cabinet Secretary Lee Kinyanjui articulated Kenya’s position, stating, “The Business Licensing Order seems to criminalise lawful EAC investments and will harm both our economies. These measures are substantive and undermine the core objective of regional economic integration under the EAC Common Market Protocol (CMP).”

The Kenyan government’s argument is rooted firmly in the foundational principles of the East African Community (EAC) Treaty and its subsequent protocols. Mr. Kinyanjui specifically cited Article 13 of the EAC Common Market Protocol (CMP). This crucial article stipulates that EAC nationals have the right to establish and operate businesses in any partner state, and critically, it forbids member states from treating other EAC nationals less favourably than their own citizens. This principle of non-discrimination is a cornerstone of the EAC’s vision for a single market, ensuring fair competition and equal opportunities across borders.

The Kenyan transport sector has also vehemently condemned Tanzania’s decision, arguing that it directly undermines the spirit, objectives, and legal framework of the EAC. Cross-border tour services, for instance, rely heavily on seamless cooperation and the free movement of personnel between member states. Banning Kenyan tour guides or transport operators from such roles is not only seen as unjust but a blatant violation of the EAC Treaty, the Common Market Protocol, and even principles upheld by the World Trade Organization (WTO), all of which advocate for the free movement of labour, goods, and services.

Bernard Shinali, Chairman of Kenya’s National Assembly Trade Committee, issued a stern warning, suggesting that the move could trigger reciprocal restrictions. “There are many Tanzanians working in our mining sites too. It is clear that Tanzanians have gone too far and we should cut links with them,” he stated, highlighting the potential for a tit-for-tat trade war that would ultimately harm both economies. Shinali confirmed that the Kenyan parliament would summon the trade minister to provide further clarification and discuss the nation’s response.

Understanding the East African Community Framework: A Vision Under Strain

The EAC, comprising Kenya, Tanzania, Uganda, Rwanda, Burundi, South Sudan, the Democratic Republic of Congo, and Somalia, is one of Africa’s most ambitious regional economic blocs. Its primary objective is to deepen integration through various stages: a Customs Union, a Common Market, a Monetary Union, and ultimately, a Political Federation.

The EAC Customs Union Protocol, established in 2005, aims to facilitate free trade among member states by eliminating internal tariffs and establishing a common external tariff for goods imported from outside the bloc. This is designed to create a larger, more attractive market for producers and consumers within the community.

The EAC Common Market Protocol (CMP), which came into force in 2010, goes a step further. It provides for the four freedoms:

1. Free Movement of Goods: Unrestricted trade of locally produced goods.
2. Free Movement of Persons: Citizens of member states can move freely across borders.
3. Free Movement of Labour: EAC citizens can seek employment and work in any member state without requiring work permits.
4. Free Movement of Services: Service providers can offer their services across the region.
5. Free Movement of Capital: Investors can move capital freely for investment purposes.

Tanzania’s new business licensing order directly challenges the principles of free movement of persons, labour, and services, and by extension, capital. By restricting non-citizens from certain business activities, it creates a non-tariff barrier (NTB) that undermines the very essence of a common market. NTBs, such as import quotas, complex customs procedures, or discriminatory licensing rules, are often more insidious and difficult to resolve than direct tariffs, as they can be disguised as regulatory measures.

Kenya’s significant stake in the EAC market further amplifies its concerns. The EAC remains Kenya’s largest export market, absorbing 28.1 percent of the country’s total exports, estimated to be worth Sh297 billion (approximately $2.2 billion USD) in 2024. Tanzania, specifically, is Kenya’s second-largest EAC trading partner after Uganda, with intra-community trade valued at an estimated Sh63 billion (approximately $470 million USD) in 2024. Disruptions to this trade flow have tangible economic consequences for Kenyan businesses and the livelihoods of its citizens.

Tanzania’s Stance: Protecting Local Interests and Formalizing the Economy

While Kenya views Tanzania’s actions as protectionist and a breach of EAC protocols, Tanzania frames them as necessary measures to empower its own citizens and formalize sectors that have seen increasing foreign informal participation. Trade Minister Selemani Jafo’s statements reflect a national policy objective to ensure that smaller, more accessible business opportunities are reserved for Tanzanians.

This approach is not entirely new in the context of developing economies. Many nations, particularly those seeking to build domestic entrepreneurial capacity, implement policies to protect nascent local industries or to ensure that citizens benefit directly from economic activities, especially in the informal sector. The argument often made is that foreign involvement in small-scale businesses can stifle local entrepreneurship, lead to capital flight, and prevent the creation of sustainable local jobs.

Furthermore, the Tanzanian government might argue that these measures are part of a broader strategy to formalize its economy and ensure regulatory compliance. The informal sector, while providing livelihoods for many, often operates outside tax frameworks and regulatory oversight. By restricting foreign participation, Tanzania could be attempting to bring more businesses into the formal economy, increase tax revenues, and improve data collection for national planning.

The “growing concerns that foreigners, including Kenyans and Chinese nationals, were encroaching on smaller businesses” highlight a domestic political dimension to these policies. Governments often respond to public sentiment and economic pressures from their own citizens, especially when there’s a perception of unfair competition from foreign entities in sectors traditionally seen as low-barrier entry points for local entrepreneurs.

Economic Fallout and Business Impact: Beyond the Diplomatic Spat

The immediate impact of Tanzania’s new rules extends far beyond diplomatic statements. Businesses and individuals engaged in cross-border trade and services are facing significant uncertainty and potential financial losses.

Impact on Kenyan Businesses:

• Small and Medium Enterprises (SMEs): Many Kenyan SMEs have ventured into Tanzania, particularly in sectors like salon services, electronics repair, and small-scale manufacturing. These businesses, often run by individual entrepreneurs or small teams, now face the prospect of being forced to cease operations or transfer ownership, leading to substantial financial losses and job displacements.
• Mobile Money Operators: The restriction on mobile money transfers for non-citizens is particularly concerning. Kenya is a global leader in mobile money innovation (e.g., M-Pesa), and its operators have sought to expand services across the region. Such restrictions hinder regional financial inclusion and the seamless flow of remittances and business payments.
• Tourism and Transport Sectors: The ban on foreign participation in tour guiding and cross-border transport services directly impacts the vibrant tourism industry that relies on seamless movement of tourists and vehicles. Kenyan tour operators bringing tourists into Tanzania, or transporters moving goods, face operational hurdles and potential loss of business. This undermines the very concept of a single tourism circuit within the EAC.
• Investment Climate: The perception that “lawful EAC investments” are being criminalized sends a chilling message to potential investors, both regional and international. It raises questions about policy predictability and the security of investments within the EAC bloc, potentially deterring future cross-border ventures.

Potential for Reciprocal Restrictions:

The warning from National Assembly Trade Committee Chairman Bernard Shinali about reciprocal restrictions is not an idle threat. If Kenya were to implement similar bans on Tanzanian nationals working in sectors like mining or other informal trades, it would escalate the dispute into a full-blown trade war. Such a scenario would be detrimental to both economies, disrupting supply chains, increasing costs for consumers, and ultimately undermining the decades-long efforts towards regional integration. The interconnectedness of EAC economies means that protectionist measures by one member state invariably have ripple effects across the entire community.

A History of Hurdles: Past Trade Tensions in the EAC

Trade disputes are not new to the East African Community. The relationship between Kenya and Tanzania, in particular, has often been characterized by periods of cooperation interspersed with protectionist measures and non-tariff barriers. Historically, issues have ranged from bans on specific agricultural products (e.g., Kenyan milk, Tanzanian maize) to disputes over customs procedures and transit fees.

• Agricultural Bans: Tanzania has, at various times, restricted imports of certain Kenyan agricultural products, citing phytosanitary concerns or a need to protect its local farmers. Kenya has occasionally responded in kind.
• Sugar and Wheat: Disputes over sugar and wheat imports, with accusations of re-exporting goods from outside the EAC to avoid common external tariffs, have also been common.
• Bureaucratic Delays: Beyond explicit bans, businesses often face challenges due to bureaucratic red tape, differing standards, and slow customs clearance processes at border points, which act as de facto non-tariff barriers.

While many of these past disputes were eventually resolved through bilateral negotiations or interventions by the EAC Secretariat, they highlight the fragile nature of regional integration when national interests are perceived to be at odds with community protocols. The current dispute, however, is particularly contentious because it directly targets the free movement of people and services, a fundamental pillar of the Common Market Protocol.

The Path Forward: Dialogue, Diplomacy, and the Role of EAC Institutions

Despite the strong rhetoric and immediate concerns, both Kenya and Tanzania have indicated a willingness to engage in dialogue to resolve the issues. Kenya, through its Ministry of Investments, Trade and Industry, has been actively participating in consultative forums aimed at aligning national trade policies with the EAC Customs Union Protocol.

Key upcoming engagements include:

• 1st Extraordinary Sectoral Council on Finance and Economic Affairs (SCFEA) Outcomes: Kenya and other member states have directed the EAC Secretariat to compile a comprehensive list of excise duties, levies, and charges that contradict the Customs Union Protocol. This list is due by August 30, 2025. This initiative is crucial for identifying and rectifying existing inconsistencies that hinder free trade.
• Harmonization of Definitions: The EAC Secretariat has also been tasked with harmonizing the definitions of ‘imports’ and ‘exports’ across member states by June 30, 2025, ensuring consistency with EAC standards. Ambiguous definitions can often lead to disputes and delays in trade.
• Compliance-Focused SCFEA Session: A second, compliance-focused SCFEA session is scheduled for September 30, 2025, specifically to address adherence to agreed-upon protocols.
• Bilateral Discussions: Kenya and Tanzania have arranged additional direct bilateral discussions to address the disputed measures and settle ongoing trade disputes. These include:
  • A technical meeting on tobacco product trade in Arusha from August 4 and 5.
  • A Joint Trade Committee session on levies, fees, and charges from August 11-12.

Cabinet Secretary Kinyanjui expressed optimism about these engagements, stating, “We are therefore positive that these engagements will yield positive results based on the foundational principles of the EAC, including the free movement of goods, people, services, labour, and capital.” He reiterated Kenya’s commitment to upholding the principles of non-discrimination, transparency, and equity in all future trade-related decisions, in line with the EAC spirit of “one people, one destiny.”

The role of the East African Legislative Assembly (EALA) and the EAC Secretariat is paramount in this process. As the legislative and administrative arms of the community, respectively, they are tasked with ensuring the implementation of EAC treaties and protocols and mediating disputes between member states. Their urgent and decisive intervention is crucial to prevent the Tanzanian directive from setting a precedent that could destabilize the entire region’s integration agenda. The outcome of these discussions will be a critical test of the EAC’s institutional strength and its ability to resolve internal conflicts peacefully and in adherence to its founding principles.

Conclusion: A Test of EAC’s Resilience

The current trade dispute between Kenya and Tanzania represents a significant test for the resilience and commitment to integration within the East African Community. While Tanzania’s actions stem from a desire to empower its local businesses and formalize its economy, Kenya views them as a direct affront to the foundational principles of the Common Market Protocol, particularly the free movement of people, services, and capital.

The stakes are high. For Kenya, the EAC is a vital export market, and disruptions to trade flows have tangible economic consequences. For Tanzania, the policy reflects a nationalistic economic agenda that resonates with its citizens. For the EAC as a whole, the dispute threatens to unravel years of progress towards deeper economic integration, potentially leading to reciprocal measures that would harm all member states.

The scheduled bilateral discussions and the involvement of EAC institutions offer a glimmer of hope. The ability of Kenya and Tanzania to find common ground, respecting both national aspirations and regional commitments, will be crucial. This situation underscores the ongoing tension between national sovereignty and regional integration, a dynamic that constantly shapes the trajectory of economic blocs worldwide. The world will be watching to see if the spirit of “one people, one destiny” can prevail over protectionist impulses, ensuring a stable and prosperous future for the East African Community.

Ready to take your career to the next level? Join our dynamic courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT  , NCLEX – RN and NCLEX – PN, Financial Literacy!🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

31st July, 2025