Introduction
The important role foreign business interests played in encouraging colonialism has been well established.Footnote 1 An outcome of the above was that during the colonial era, such businesses “were able to operate within an imperial culture that allowed them to ignore many dissatisfied voices.”Footnote 2 It was therefore not surprising that the nationalization of such foreign business interests was widespread once African countries began to attain political independence. According to Robert Tignor, from “every corner of the continent came statements that political independence without economic autonomy would be a sham liberation.”Footnote 3 In 1960 alone, fifteen African countries gained independence. By 1962, at least seventeen African countries had enacted new laws that either modified existing investment regimes or created entirely new ones.Footnote 4 The result was that between 1960 and 1974, Africa recorded more expropriations of foreign business interests than any other region of the world.Footnote 5
Given the widespread nature of nationalization of foreign business interests in post-independence Africa, it is not surprising that the subject matter has attracted enormous research attention.Footnote 6 In the past, most indigenization studies have focused on analyzing the various instruments used by states to nationalize or curtail foreign business interests across several countries in the continent or in specific countries, and on the role of nationalization in economic development of the concerned states.Footnote 7 An under-researched aspect of the indigenization exercise is the role played by home country governments of multinational businesses during the indigenization period. This is in part because of the widespread belief that such home governments lost both the power to help and interest in assisting their multinational businesses once political independence became imminent.Footnote 8 As a consequence, it has been argued that host country attitudes towards foreign investments became more important than home country power.Footnote 9
One reason for the emergence of this view is the fact that the imminence of political independence necessitated a change in the strategy of home governments, from overt to covert support, when dealing with their multinationals in their former colonies.Footnote 10 Evidence of the covert activities of foreign governments is rarely made public, however. Documents that demonstrate such covert support take the form of restricted internal memos, which normally end up in national archives. Because of their sensitive nature, such materials are not generally made public until after a considerable amount of time has elapsed. Most archives have a thirty-year rule in this regard.Footnote 11
Using newly available materials mainly from the British National Archives (BNA) in London, this paper contributes to the literature on the role home governments of multinational businesses played during the nationalization era in postcolonial Africa.Footnote 12 Specifically, the paper uses the 1978 nationalization of all the subsidiaries of a British multinational company in Tanzania, the London and Rhodesia Holdings (Lonrho) Limited as a case study.Footnote 13 Lonrho was at the time “the largest and most widely established company on the African continent.”Footnote 14
This paper shows how Lonrho’s activities in other African countries and the specificities of postindependence Tanzania put Lonrho on a collision course with the government of Tanzania under President Nyerere. This culminated in the nationalization of all Lonrho’s business interests in Tanzania in 1978. The paper argues that during the entire episode of the nationalization of Lonrho’s assets and the compensation negotiations, the UK government, while providing general support for Lonrho, strategically refused to get drawn into the dispute. Aside from the fact that it disapproved of Lonrho’s combative tactics of in the company’s attempt to obtain fair and prompt compensation for its nationalized assets, the British government was mindful of the fact that there were other British interests with nationalized assets in Tanzania at the time. In this direction, it believed that supporting a multilateral approach to dealing with Tanzania would be a better strategy for getting Tanzania to live up to its international obligations, which included respecting international laws on the expropriation of foreign capital. At the time, Tanzania was not a member of the International Centre for the Settlement of Investment Dispute (ICSID), which operates under the auspices of the World Bank.
The British government believed that membership of such a multilateral organization was the most effective way to ensure that Tanzania lived up to its international responsibility to pay fair, appropriate, and prompt compensation for expropriated assets. Finally, this paper also documents the role played by Lonrho’s chairman, Lord Duncan-Sandys, who was formerly the secretary of state for the colonies and commonwealth relations, in bringing the process to an amicable conclusion. To achieve its aim, this paper is divided into four parts. Part 1 describes the economic and political history of Tanzania prior to the nationalization of Lonrho in 1978, while part 2 explores the rise of Lonrho and its business interests in Tanzania. Part 3 critiques the drawn out negotiations and the various tactics used by the British and Tanzanian governments and Lonrho during the process, and part 4 concludes the paper.
The Economic and Political History of Tanzania
The country Tanzania was established in 1964 with the unification of mainland Tanganyika and the island of Zanzibar.Footnote 15 Prior to the time, Tanganyika had been a German East African colony from 1881 to 1919. After the defeat of Germany in the First World War, Tanganyika became a British colony until 1961, when it gained political independence. Julius Nyerere, who was then the leader of the Tanganyika African National Union (TANU), became the country’s first prime minister. In the 1960 elections that brought Nyerere to power, TANU “candidates were returned in all but one of the 71 constituencies being unopposed in no less than 58 of them.”Footnote 16 In 1962, Tanganyika became a republic and Nyerere was elected the country’s president.Footnote 17
In 1962, two years before unification, Nyerere had propounded Ujamaa (from the Swahili meaning extended family, or brotherhood) as the economic model for the newly independent Tanganyika. This represented Nyerere’s conception of “African socialism.”Footnote 18 It has been suggested that Nyerere’s idea of Ujamaa was extensively influenced by his time at the University of Edinburgh, where he studied economics and history between 1949 and 1952. Specifically, the concept of Ujamaa followed closely the ideas expressed in An Introduction to Social Anthropology (1950), written by Professor Ralph Paddington, Nyerere’s lecturer in social anthropology.Footnote 19
According to Nyerere, the essence of Ujamaa was to create a country “in which all her citizens are equal; where there is no division into rulers and the ruled, rich and poor, educated and illiterate, those in distress and those in idle comfort.” The adoption of Ujamaa was to further ensure that Tanzania became a country where “all would be equal in dignity; all would have an equal right to respect, to the opportunity of acquiring a good education and the necessities of life; and all her citizens should have an equal opportunity of serving their country to the limit of their ability.”Footnote 20 It has also further been suggested that the major benefit of Ujamaa was to “get rid of individualistic gains (selfishness).”Footnote 21
On the other hand, the Zanzibar archipelago, which is about twenty-five to fifty kilometers off the coast of Tanganyika, consists of numerous small islands and two large ones: Zanzibar and Pemba. The territory developed as an empire based on the twin foundation of commerce and a plantation economy.Footnote 22 The population of the islands consisted of Africans, Arabs, and Asians.Footnote 23 Although Africans were in the majority, they were not united. The Africans who were descendants of slaves (Shirazis), for instance, considered themselves different from those that migrated from the Tanganyika mainland. The result was that the Arabs governed the territory as a sultanate while the Asians were dominant in commerce. At the bottom of the hierarchy were the Africans, who dominated the manual labour force.Footnote 24
This social structure remained even after the island became a British protectorate in 1890.Footnote 25 Before Zanzibar became independent in 1963, the mainly Arab Zanzibar Nationalist Party (ZNB) aligned itself with the Zanzibar and Pemba Peoples Party. Although the African dominated Afro-Shirazi Party pulled over 54 percent of the votes in the pre-independence election, they only won 13 of the 31 seats in the national assembly “due to arrangement of constituencies.” Just before the elections however, a radical faction broke from the ZNP and formed the Umma Party. The new party immediately aligned with the Afro-Shirazi Party and started accusing the ruling alliance of being a scheme for sustaining Arab oligarchy. The ensuing crisis culminated in a coup within a month of the country’s gaining political independence; at least 5,000 Arabs were killed and several others fled the island.Footnote 26 This resulted in the establishment of the Peoples’ Republic of Zanzibar and Pemba. The uncertainty caused by the coup, however, caused its leaders to approach Tanganyika about the possibility of forging a union of the two countries. This was “perfectly understandable since the regime saw itself as definitely non-Arab and was predisposed to identify with the peoples of the mainland who had previously manifested sympathy for the plight of the African majority.”Footnote 27
In April 1964, the Peoples’ Republic of Zanzibar and Pemba subsequently merged with the United Republic of Tanganyika to form the United Republic of Tanzania. In 1965, Nyerere was elected president of Tanzania under a new constitution that turned the country into one-party state.Footnote 28 Given the dominance of Tanganyika (and Nyerere) in the new union, it was not surprising that Ujamaa became the economic philosophy of the new Tanzania. Despite this, Ujamaa remained an idea, not a fact. There was very little effort to achieve its objectives and there was little difference between Nyerere’s policies and those of other newly independent African countries at the time. For instance, it has been noted that in Tanzania at the time, private and foreign “investments were officially encouraged.”Footnote 29 According to Coulson, foreign “companies were given tax concessions to invest in import substituting industries” and the economy still depended “on a few hundred foreign owned plantations and estates producing about half of the country’s export earnings.”Footnote 30
Another major source of income for the Tanzanian government at the time was development aid. However, Tanzania’s deteriorating diplomatic relations with some of the more important countries that provided such aid, including West Germany and the United States, had a negative impact on this.Footnote 31 The Unilateral Declaration of Independence (UDI) by the government of Ian Smith in Rhodesia (now Zimbabwe) in 1965 made Tanzania’s dependence on foreign aid even more precarious. Once UDI was declared, for instance, the foreign ministers of the Organization for African Unity (OAU) gave the British government two weeks to rescind it or face severance of diplomatic relations.Footnote 32 On December 15, 1965, Nyerere cut diplomatic ties with the United Kingdom. Nyerere defended his action by arguing that there was need for Tanzania to stand up for its belief in the fundamental principles of anti-colonialism and non-racialism irrespective of the fact that it was heavily dependent on foreign technical assistance and development aid for its economic survival. “How can we criticize Britain for not being willing to pay the price of freeing Southern Rhodesia … if we ourselves are not prepared to pay a price to show our own determination?”Footnote 33
From the above, it is clear that Nyerere did not allow the perceived benefits of western aid to influence his position on the continued suppression of Africans.Footnote 34 By cutting off diplomatic relations with the UK, Tanzania lost £7.5 million worth of British aid yearly.Footnote 35 This “showed that Tanzania could not continue to rely on external grants and aid, as it had done in the past.”Footnote 36
Paucity of development aid funds however led to the rise of internal descent in various sectors of Tanzanian society. Unemployment, for instance, was on the increase and the attempt by the government to cut the allowances of university students was vehemently resisted. Independent trade unions were also in conflict with government, while the army had in 1964 rebelled partly because it wanted more pay. Although Nyerere remained popular and had successfully turned Tanzania into a one-party state, it was clear that there was need for new initiatives if the status quo was to be maintained.Footnote 37
The result was that in 1967, the ruling TANU party passed the Arusha Declaration, which also promoted the concept of socialism and self-reliance. This “set the stage for the formal inauguration of Ujamaa.”Footnote 38 The consequence of the Arusha Declaration was the lowering of the salaries of and allowances for civil servants and politicians, and the nationalization of all the banks in the country (except the Cooperative Bank),Footnote 39 insurance companies, certain firms engaged in processing food, and key firms engaged in wholesale and external trade.Footnote 40 Tanzania Sisal Estates, a Lonrho subsidiary, was nationalized in 1968. Over the years, the list of nationalized businesses gradually expanded. In April 1971, for instance, the Tanzanian National Assembly passed a law nationalizing all buildings worth more than TSh 100,000 (£5000) that were not solely occupied by their owners. According to Nyerere, the goal of the law was “to prevent the emergence of a class of people who live and thrive by exploiting others.”Footnote 41 Interestingly, as will be seen in the next section, the subsequent nationalization of all Lonrho subsidiaries in Tanzania in 1978 was purely a political decision that had little to do with attaining the objectives of Ujamaa.
Lonrho and Tanzania
Lonrho was founded in 1909 as the London and Rhodesia Mining and Land Company (renamed Lonrho in 1963). In 1961, Roland “Tiny” Rowland joined the company as joint managing director.Footnote 42 The impact of this singular development on the company’s history was profound. It has been suggested that during “Lonrho’s first century of business no individual figured more prominently than Roland Walter ‘Tiny’ Rowland.” He transformed “a moribund mining and ranching company … into a sprawling conglomerate that straddled much of the world, with operations blanketing all of Africa”. Also, annual “sales during the three decades of Rowland’s stewardship increased 787-fold. Profits rose 1365 times.”Footnote 43
At its peak in the mid-1980s, the Lonrho Group comprised over 800 companies, was represented in over 80 countries,Footnote 44 and employed 150,000 people.Footnote 45 This growth is even more remarkable when one takes into consideration the fact that its rapid expansion in Africa took place at the peak of the nationalization era in Africa, when other British multinationals operating in the continent were shrinking their operations.Footnote 46
Based on the above, it was not surprising that Rowland was seen as the business “rainmaker” in Africa.Footnote 47 He was also seen as the man who “understands African business methods.”Footnote 48 There was however evidence that his methods included bribing African leaders.Footnote 49 Rowland also once asserted “These African leaders … are so corrupt that that there’s not a single one of them I could not buy.”Footnote 50 He also believed that “the success of his activities in Africa depended on contacts at the highest possible level” and that “ex gratia payments to individuals may be required to oil the wheels of business.”Footnote 51
Rowland was very successful in Africa because the continent, which was at the time dominated by countries with strong leaders and weak institutions, was peculiar. This has been explained thus: “African politics are based on private power, where individual loyalties and fear compliment [sic] a system of material incentives in replacing institutions of effective government.” The consequence of the above is that individuals in positions of power, rather than being guided by rules of office, “are motivated by expediency and the pursuit of personal and factional aggrandizement.” Such leaders are therefore, often “courted, cajoled, convinced, and even bribed to agree to circumstances or procedures that are generally institutionalized processes in many industrialized states.”Footnote 52 The success of Rowland and Lonrho in Africa stemmed from Rowland’s clear understanding and exploitation of these tendencies. The political dynamics in Tanzania at the time did not quite fit the above construct because, although Nyerere was a strong leader who believed that government with the people’s confidence was more important than government with the peoples consent, he was not corrupt.Footnote 53 Personal financial enhancement was of little importance in his decision-making process.
Lonrho came to Tanzania in November 1964 when the British Central African Company, a subsidiary of the African Investment Trust, itself a Lonrho subsidiary, acquired interests in sisal production in Tanzania. At about the same time, Lonrho also acquired Riddoch Motors.Footnote 54 The next move by Lonrho in Tanzania was its attempt to obtain the contract for the construction of a 1,500 mile pipeline from Dar es Salaam to Ndola (Zambia) costing £12 million. This was linked to a £6 million oil refinery at Ndola. This attempt however failed.Footnote 55 Despite this setback, Lonrho further expanded its Tanzanian operations in 1967. This was as a consequence of the company’s activities in neighboring Kenya. Specifically, in June 1967 control of Consolidated Holdings Limited Kenya passed to a subsidiary of Lonrho in the country, African Investment Trust Limited. This singular transaction brought the following Tanzanian companies into the Lonrho Empire: Tanzania Standard Newspapers Limited, Stationary and Office Supplies Tanzania Limited, and Printpak Tanzania Limited.Footnote 56
Following the Arusha Declaration in October 1967, the Tanzanian government nationalized Lonrho Sisal Estates in 1968.Footnote 57 Lonrho subsequently established several new subsidiaries in Tanzania. By 1978, for instance, the company had twenty subsidiaries operating in Tanzania (see table 1).Footnote 58 Despite the public statements by the Tanzanian government that it would pay full and fair compensation for nationalized assets, it was not until June 30, 1978, that Lonrho Sisal Estates finally signed a settlement agreement with the Tanzanian government.Footnote 59 On June 2, 1978, however, only a few weeks before, the Tanzanian government announced its decision to nationalize all subsidiaries of Lonrho Limited in the country (see table 1). At the time, Lonrho employed 2500 people in Tanzania. Of this number, 1200 worked in the company’s tea estates.Footnote 60 Lonrho was directed to sell all its assets in Tanzania to the National Development Corporation (NDC) at a fair price acceptable to the government of Tanzania.
Lonrho’s Investments in Tanzania as at June 2, 1979
* Effectively 51 percent.
Source: Sir George Bolton (Lonrho) to Bank of England (26 September, 1978, BNA FCO31/ 2379).
The “official reason” provided for this action was Lonrho’s “continued defiance of the UN mandatory sanctions against Rhodesia and the expansion of its business interests in South Africa.”Footnote 61 The Tanzanian government specifically cited the 1976 Lonrho investigation report by the Department of Trade of the British government as evidence of this.Footnote 62 The said report had its origins in Lonrho’s internal boardroom squabbles of the early 1970s. This was essentially linked to the company’s increasing scandals and declining fortunes. Lonrho’s overexpansion and Rowland’s “informal style of management” was partly responsible for this.Footnote 63 This dispute, which was also played out publicly in the court of law, was eventually resolved at an extraordinary general meeting in which shareholders decided to support Mr. Rowland and sack the eight directors who opposed him.Footnote 64 The fact that the many sins of Lonrho and some of its directors were now public, however, made it difficult for the British government not to intervene by initiating some form of investigation into the company’s activities. This made the secretary of state for trade and industry, in pursuance of the powers conferred on him by section 165 (b) of the Companies Act of 1948 (as amended), to appoint inspectors Sir William Slimmings and Mr. Allan Hayman, OC, to investigate the affairs of Lonrho Limited on May 23, 1973.Footnote 65
With respect to Lonrho’s defiance of the UN’s mandatory sanctions against Rhodesia, the report published in July 1976 specifically found that Rowland and two London-based Lonrho directors had contravened the regulation by financing the Shamrocke and Inyast Mines, both in Rhodesia. This was done without the knowledge of the whole board.Footnote 66 Though the Lonrho officials were indicted, they never faced prosecution. This was because the director of public prosecution concluded that the evidence at his disposal, or which could in practice be procured, would not justify his proceeding with prosecution.Footnote 67
Lonrho interpreted the above to mean that they “had been totally cleared of all the allegations of sanctions-breaking in Rhodesia.”Footnote 68 According to Mr. M. Steel, a legal counselor of the Foreign and Commonwealth Office (FCO), this interpretation was misleading.Footnote 69 Despite the above, the British government was of the view that the sanctions-breaking was unlikely to be the real reason for the nationalization, especially given the time that elapsed between the time the inspectors’ report was published in July 1976, and the announcement of the nationalization of Lonrho’s assets in June 1978, nearly two years later. In the opinion of the British government, the real reason for the nationalization was that Nyerere was “piqued” by Rowland’s attempts to bolster individual nationalist factions, including Joshua Nkomo in Rhodesia.Footnote 70 A socialist and Pan-Africanist “untainted by corruption or scandal,” Nyerere was fundamentally opposed to outside intervention in African matters,Footnote 71 and he was irked by Rowland’s support for Nkomo, who favoured a mixed economy over his Marxist rival, Robert Mugabe.Footnote 72
Subsequent to the 1978 nationalization announcement, Lonrho had no choice but to commence negotiations with the government of Tanzania in order to determine the compensation it was entitled to receive.
The Lonrho Negotiations with the Government of Tanzania
Once the 1978 nationalization of all Lonrho subsidiaries in Tanzania was announced, the company had good reason for being concerned about compensation, for it had taken a decade for an agreement to be reached about Tanzania Sisal Estates after it was nationalized in 1968.Footnote 73
At the beginning of the negotiations, Rowland visited Tanzania twice without seeking the assistance of the British High Commission. The initial negotiations between Lonrho and the NDC, which lasted from July to September 1978, ended in a stalemate. Lonrho’s proposition that the valuation of its nationalized businesses be based on asset value and profitability was rejected by the NDC, which proposed a valuation based on “the share prices of a basket of Kenyan companies having no connection with the expropriated companies, and … insisted on disregarding cash balances.”Footnote 74 Another point of divergence between the two negotiating parties was the fact that Lonrho’s compensation plan was based “not only on the assets of Lonrho but also on Lonrho’s estimate of the value of the goodwill of the companies concerned.” The NDC was clearly not prepared to offer compensation for goodwill. The consequence of the above valuation difference meant that while the NDC was offering TSh 27 million, Lonrho was demanding TSh 378 million.Footnote 75
It was at this point that Rowland wrote to the Tanzanian government to call off the negotiations. He asserted that unless they had a cheque for approximately TSh 378 million to give him when he arrived, there was no point in negotiations proceeding.Footnote 76 Lonrho subsequently sought the assistance of the British government urging it to intervene at a political level. From the very beginning, the British government was consistent in its position that Lonrho was entitled to “prompt, adequate and effective compensation.”Footnote 77 This was so despite the fact that Lonrho was not “HMG’s favourite company”Footnote 78 and that a British prime minister once described the company as “the unacceptable face of capitalism.”Footnote 79 It was also made explicit that Lonrho “are as much entitled as any other British company to appeal for the support and assistance of HMG in securing prompt, adequate and effective compensation.”Footnote 80 Such support is usually “no more than oiling the wheels of the procedures, and encouraging expeditious handling of cases.”Footnote 81
As already mentioned, Britain at the time had other strategic interests in Tanzania and believed that getting consumed in the Lonrho affair could jeopardize its wider interests.Footnote 82 Specifically, its primary goal at the time was to see to “the renewal and successful conclusion of negotiations between the Tanzanians and the I.M.F. in order that there can be a coordinated response to Tanzania’s aid requirements.” Britain, which was aware of the financial problems Tanzania was facing at the time, was also pursuing compensation claims by other British interests in Tanzania amounting to £5 million. Britain was therefore not willing to see its wider interests damaged by Lonrho’s tactics.Footnote 83
Perhaps more important, the British government believed that the “sooner Tanzania can reach an agreement with the IMF and the World Bank, the better will be our chances of making progress on the compensation issue.”Footnote 84 This was because, at the time, the express purpose of the World Bank was to act “as a safe bridge over which capital can move.”Footnote 85 In light of the above, the British realized that such a multilateral agreement would become a much stronger basis for making Tanzania amenable to foreign pressures. This was particularly important given the fact that unlike the UK, Tanzania was at the time not a signatory to the ICSID Convention.Footnote 86 With an IMF- and World Bank-sponsored multilateral aid agreement in place, for instance, it would become easier to get Tanzania to sign the ICSID Convention, and achieving fair, full, and prompt compensation under such circumstances would be by far much easier.
Based on the above objective, the British government did not support Rowland’s combative stance on the compensation issue. Rowland’s letter also “considerably annoyed President Nyerere who, without even consulting the NDC further, had personally ordered the takeover to proceed.”Footnote 87 It was as a consequence of the above directive that the government of Tanzania, in October 1979, published a draft of Lonrho Companies (Acquisition and Regrant) Bill 1979, its proposed law aimed at legalizing the acquisition of Lonrho. This bill essentially provided for the acquisition of all shares, liabilities, and assets of all the Lonrho companies incorporated in Tanzania by the Treasury Registrar. The bill also gave retrospective authority for the control of all the business and affairs of the companies by an ex-Lonrho management board from the time of the takeover announcement until such a time when the companies were regranted. The president of Tanzania was required to order the regrant of Lonrho companies to public corporations or other parastatal organizations as soon as practicable after the enactment of the proposed law.
Section 12 of the proposed law dealt with provisions for the payment of compensation for the nationalized Lonrho companies. This contained a clause that in “assessing the compensation, the Minister for Finance will take into account any losses which in the opinion of the Minister for Finance have been caused to the national economy as a result of the conduct of the business or the conduct of the previous owner or of the failure of the previous owner to maintain the assets.”Footnote 88 The draft legislation was subsequently passed by parliament on 24 October 1979. According to local press reports, “there was no substantive debate, members mostly confining themselves to praising the government for acquiring the companies belonging to a notorious multi-national corporation.”Footnote 89
Despite the above developments, the Tanzanians were still interested in getting Lonrho to the negotiating table. On a number of occasions, officials of the NDC privately informed the British High Commission in Dar es Salaam that the Tanzanian government would be willing to negotiate based on the value of the assets of Lonrho companies that were nationalized, and that its position on earlier negotiations could not be its last word on the subject matter.Footnote 90 In fact, the NDC had at the time commissioned Coopers and Lybrand to undertake a detailed audit of the nationalized ex-Lonrho companies with a view of ascertaining their fair value. It was the above developments that led Mr. Moon, the British High Commissioner in Tanzania, to conclude that the “Tanzanians were [still] anxious to get Lonrho to the negotiating table so that they could prove to the international business community that Tanzania was prepared to pay full compensation in cases of expropriation.”Footnote 91 Despite the best of intentions by the Tanzanians, the British government also realized that the severe economic difficulties the country was facing at the time made it extremely difficult for it to guarantee prompt payment of any agreed expropriation charges.Footnote 92
Lonrho however remained combative. Promulgation of the Lonrho Companies (Acquisition and Regrant) Act further incensed the company and made it more confrontational. In an open letter to President Nyerere, Rowland accused him of spending TSh 96 million from the Tanzanian bank accounts of the nationalized companies, and of taking and using rail and pipeline surveys that had cost Lonrho over £2.5 million sterling. Rowland concluded that Nyerere’s objective was simply to “avoid payment” of compensation.Footnote 93
The tone of the above letter simply made the Tanzanians “more stubborn than ever.”Footnote 94 Nyerere placed a “political blockade” on the completion of the Coopers and Lybrand audit.Footnote 95 Lonrho also went to the extent of petitioning the president of the World Bank on the subject matter. This was a strategic move because the World Bank was at the time “Tanzania’s largest public source of aid extending over $100 million in new loans annually.”Footnote 96 Specifically, Lonrho asserted that at the time it was expelled from Tanzania, its twenty subsidiaries operating there had cash balances of approximately £6.3 million pounds, and assets of approximately £27 million. Lonrho went on to accuse the Tanzanian government of deliberately delaying the signing of the Coopers and Lybrand audit it had commissioned in order to “frustrate meaningful compensation discussions and to enable them to prepare legislation to “legalize” the seizure. The letter then went on to conclude thus:
Although the Tanzanian Government is not party to the convention with the World Bank for settlement of investment disputes, we nevertheless understand that the World Bank is considering the possibility of granting aid to Tanzania and in particular for the construction of the Songea-Mukmbaka road.… We submit that Tanzania’s seizure of our assets followed by retroactive legislation covering this seizure 18 months later is the most flagrant example of an expropriation of private property by any government.… It is this background and the certainty that this Tanzanian Government has no intention of compensating us in fair, full and prompt fashion which lead us to ask for your full cooperation in denying Tanzania any aid and to further ask you to make it clear to other credit organizations throughout the world that you do not intend to support the Tanzanian Government until adequate compensation has been agreed.Footnote 97
Coopers and Lybrand, which doubtless had an “eye to their commercial future in Tanzania,” swiftly denied aspects of the claim relating to it.Footnote 98 The British government also refused to support the Lonrho petition to the World Bank.Footnote 99 Despite this setback, Lonrho continued to exploit any opportunity it could to press its case for full, fair, and prompt compensation.Footnote 100
As already mentioned, with respect to tactics, the British government consistently opposed Lonrho’s generally combative approach to the compensation problem. Particularly, the company’s personal attacks on Nyerere raised serious concerns in British government circles. In fact, it became difficult for the British government to meaningfully aid Lonrho because they could neither control the company nor guarantee that classified information shared with it would be respected.Footnote 101
Lonrho also pressed the British government to use its aid programme as a tool to enforce compensation. This view was particularly canvassed by a British parliamentarian who was also a director of Lonrho, the Rt. Hon. Edward du Cann, MP. Specifically, he argued that “insult is added to injury by HM government providing huge amounts of aid for a government like that of Tanzania which has stolen British and Commonwealth owned assets and apparently has no intention for paying for them unless compelled to do so.”Footnote 102
The British government was however not keen to link its aid program to the issue of confiscation of British assets in Tanzania. An undated FCO confidential note argued that the “the direct use of aid to compensate in expropriation cases is contrary to parliamentary legislation and tends to encourage further expropriations.” Generally, it was argued that the British government had always avoided this kind of linkage in the past for two main reasons: the long-term nature of the development process ensured that aid could be stopped and restarted at short notice without waste and without harming its primary objectives. Furthermore, recipient countries of such aid usually reacted strongly to attempts by donors to link aid and expropriation compensations. On the other hand, some argued that “judicious manipulation of the aid programme can improve general bilateral relations and make diplomatic representations more successful.”Footnote 103
With particular reference to Tanzania, there were also other limitations. The British government, for instance, knew from experience that Nyerere was capable of imposing hardship on his country for what he considered to be matters of principle. Furthermore, Britain conceded that given the economic difficulties in the country at the time, Tanzania was constrained in its ability to pay. Finally, the British also knew that the fact that it was not the leading aid donor to Tanzania greatly limited its leverage in using aid as a coercion tool.Footnote 104
Without any resolution in place, Lonrho deployed its new chairman, Lord Duncan-Sandys, to help resolve the dispute. Duncan-Sandys, had served as secretary of state for the colonies and commonwealth relations under Prime Ministers Harold Macmillan and Alec Douglas Home in the early 1960s.Footnote 105 He was first appointed as a consultant to Lonrho by Rowland in November 1971. According to Rowland, he invited Sandys to become a consultant because of his “personal status and extensive experience in international affairs, particularly in Africa.”Footnote 106 Sandys later became Lonrho’s chairman, again at the invitation of Tiny Rowland, on April 4, 1972. “His knowledge as a former Commonwealth Secretary has always been highly regarded by Rowland.”Footnote 107 Interestingly, Duncan-Sandys had related with Nyerere when he was the colonial and commonwealth secretary. One such occasion was in 1964 when there was a military uprising in Tanganyika. Ironically, it was Nyerere, who had always detested foreign intervention in Africa, who invited the British to quell the mutiny. “By his own admission, Nyerere was profoundly embarrassed by having to rely on Western military assistance.”Footnote 108 His “nationalist ego was wounded.”Footnote 109 Nonetheless, a grateful President Nyerere subsequently expressed his gratitude in writing to Lord Sandys.Footnote 110 Once this crisis was over, however, Nyerere quickly moved to distance himself from Britain in order to strengthen his image as a pan-African nationalist. Nyerere, for instance, was “reluctant to accept Sandys’ offer of a British military training team when they met” barely one month after the uprising.Footnote 111
Before intervening in the Lonrho nationalization dispute, Duncan-Sandys had concluded that “in the past, part of the problem had been the style of negotiation adopted by Lonrho.” Duncan-Sandys “approach to Nyerere was [thus] extremely skillful and persuasive.”Footnote 112 First, he wrote an “emollient” letter to Nyerere.Footnote 113 This was a totally different approach from that of Tiny Rowland. He then travelled to Tanzania and met with President Nyerere on July 18, 1980. During the meeting, Sandys was accompanied by Spicer, a Lonrho director and P. Moon, the British High Commissioner in Tanzania. Present on the Tanzanian side were the Tanzania’s Ministers of Finance and Industry, Amir Jamal and Cleopa Msuya, respectively, and Professor Simon Mbilinyi, who was Nyerere’s economic adviser. According to Moon, “the main discussion took place in an initial private meeting of some 20 minutes when Lord Duncan-Sandys was alone with the President.”Footnote 114
The all-inclusive meeting, which was essentially a formality, therefore proceeded without a hitch. During the said meeting, Nyerere made it explicit that “if only for reasons of political ‘face’ it was quite impossible to turn the clock back for Lonrho to be reestablished.” Nyerere did not, however, exclude the possibility of future investment by Lonrho in Tanzania if the company so wished. With respect to the delay in compensation, President Nyerere “somewhat to the embarrassment of his Ministers said that he did not personally understand the delay over presenting the audit.” He therefore gave instructions that the work should be completed as quickly as possible and a copy of the said audit report given to Lonrho.Footnote 115
At the instance of Duncan-Sandys, Nyerere also agreed that a joint statement be made recording their discussions. The key sentence in this statement, which was publicized, read: “In the course of a most cordial and constructive discussion about the relationships between Lonrho and the Tanzanian government, a number of misunderstandings were clarified.” Furthermore, it was agreed that Lonrho was at liberty to unilaterally add, when answering press questions for instance, that “it was agreed that the question of compensation for the nationalization of Lonrho’s assets should be settled without delay” and that “hope was expressed that the company might be able once again to develop mutually beneficial commercial activities in Tanzania.”Footnote 116
The meeting therefore essentially resulted in the removal of the “political blockade” on the completion of the Coopers and Lybrand audit.Footnote 117 This made John Robson of the Foreign and Commonwealth Office’s economic affairs division to conclude that Duncan-Sandys’ “skillful and persuasive handling of Nyerere indicates that this is the right tactic for producing the desired result.”Footnote 118 Coopers and Lybrand was subsequently “instructed to give the highest priority to completing their work on Lonrho.”Footnote 119 Based on the report, which took four months to complete,Footnote 120 the compensation negotiations resumed in earnest. In 1982, Tiny Rowland reported to Lonrho that he had been advised by Nyerere that “the circumstances giving rise to the confiscation of the Group’s assets arose from a misunderstanding and are no longer valid.”Footnote 121 On 12 September 1983, an agreement was finally signed between Lonrho and the government of Tanzania whereby the government agreed to pay the Group TSh155,000,000 (£8.37M).Footnote 122 This brought an amicable end to this long drawn-out compensation dispute between the government of Tanzania and Lonrho.Footnote 123
Conclusion
By introducing newly available evidence mainly from the BNA London, this paper has attempted to document and critique the rise of Lonrho in Tanzania, the circumstances that led to its nationalization by the Tanzanian government in 1978, and the protracted negotiations that eventually resulted in a compensation agreement being reached in 1983. Contrary to the view that the British government lost interest or the power to aid the foreign activities of its multinational businesses in its former colonies, evidence in this paper demonstrates that the British government was strategically involved in the compensation negotiations between Lonrho and the Tanzanian government in the 1970s and 1980s. This was so despite the fact that the British government refused either to use its aid to Tanzania as a tool of coercion or to support Lonrho’s petition to the World Bank to suspend all aid and loans to Tanzania. This was because it believed that getting Tanzania to join the ICSID was a more effective strategy for ensuring that Tanzania lived up to its international responsibility to pay fair, appropriate, and prompt compensation for nationalized assets.
At another level, the paper also shows how the intervention of Lonrho’s chairman, Duncan-Sandys, helped facilitate the conclusion of the long drawn-out compensation negotiations. Duncan-Sandys’ less combative and skilled approach to Nyerere played an important role in the resolution of Lonrho’s nationalization compensation impasse with the Tanzanian government and the subsequent clearance the company got to reestablish in Tanzania. Tiny Rowland’s confidence in the value of Duncan-Sandys’ experience as the basis for appointing him chairman of Lonrho was not misplaced. Evidence in this paper therefore broadly suggests that the experience garnered by British colonial and commonwealth officials in foreign territories remained useful to British economic interests even after such officials had retired from public service.
