EAC Cross-Border Investment at a Crossroads: How Tanzania’s Crackdown Threatens Regional Stability and Investor Confidence

The East African Community (EAC) is at an inflection point. Recent events in Tanzania—where foreign activists were detained and deported amid heightened political repression—have exposed vulnerabilities in regional integration efforts. For investors, this is not just a geopolitical flashpoint but a stark warning: cross-border investments in EAC economies face escalating governance risks. Sectors like tourism, infrastructure, and legal services are particularly exposed. Here’s why investors must act now.

The Tanzania Factor: A Template for Geopolitical Risk

In May 2025, Tanzanian authorities arrested and deported prominent Kenyan and Ugandan activists attempting to observe the treason trial of opposition leader Tundu Lissu. The crackdown, framed as a defense of sovereignty by President Samia Suluhu Hassan, has drawn sharp criticism from regional legal bodies like the East African Law Society (EALS). These arrests violate the EAC Treaty’s free movement provisions and risk fracturing trust among member states.

The implications are clear: Tanzania’s actions signal a willingness to prioritize national sovereignty over regional integration, creating legal uncertainty for multinational firms. Investors in sectors reliant on cross-border collaboration—such as infrastructure projects linking Kenya and Uganda—now face the possibility of arbitrary regulatory interference. Meanwhile, the government’s ban on foreign currency use in domestic transactions (effective March 2025) adds financial complexity, as firms grapple with currency volatility and bureaucratic hurdles.

Sector-Specific Risks: Tourism, Infrastructure, and Legal Services

1. Tourism: Tanzania’s tourism sector, a cornerstone of its economy, faces immediate headwinds. The social media shutdown of X (Twitter) following a cyberattack—and the government’s expanded digital censorship—undermine investor confidence. Foreign tourists may avoid destinations perceived as politically unstable, while regional travel restrictions could disrupt cross-border tourism corridors like the Kenya-Tanzania Northern Circuit.

2. Infrastructure: The EAC’s ambitious Cross-Border Payment System Masterplan, designed to boost trade by 2031, now faces implementation delays. Tanzania’s restrictive policies and diplomatic tensions with neighbors could stall projects like the Standard Gauge Railway linking Kenya and Uganda. Investors in construction firms like China Road and Bridge Corporation (CRBC) or Kenya’s National Construction Ltd. must factor in delays and cost overruns tied to geopolitical friction.

3. Legal Services: The EALS’s threat to sue Tanzania over its activist crackdowns highlights rising legal risks. Firms operating in the EAC must now contend with inconsistent regulatory enforcement and potential litigation. For example, the detention of activists like Kenya’s Boniface Mwangi—who faced charges under vague immigration laws—sets a dangerous precedent for corporate actors accused of “interfering” in domestic politics.

The Write-Down: Governance Risks Are the New Reality

The EAC’s governance challenges are systemic. While Tanzania’s actions are the most visible, regional instability extends beyond its borders. Rwanda’s 21% budget increase for 2025/26 infrastructure projects and Uganda’s $8.79M biogas initiative reflect positive trends, but these gains are overshadowed by broader risks:

• EAC Legal Gridlock: The East African Court of Justice (EACJ) may now be tasked with adjudicating disputes over Tanzania’s violations, creating regulatory limbo for investors.
• Diplomatic Fallout: Kenya’s public condemnation of the detentions and EALS’s legal threats underscore growing rifts within the bloc, complicating cross-border investment agreements.
• Currency Volatility: Tanzania’s shilling stabilization efforts—despite strong foreign reserves ($5.6B as of Q1 2025)—are undermined by political uncertainty, making hedging strategies critical for firms.

Investor Action: Mitigate Risk, Rebalance Portfolios

The writing is on the wall: the EAC’s geopolitical risks demand a strategic reassessment. Here’s how to navigate this landscape:

1. Sector Diversification: Shift focus to less politically exposed sectors. The EAC’s renewable energy sector—such as Uganda’s biogas project—offers growth with lower governance risk.
2. Local Partnerships: Prioritize investments through local firms with strong ties to EAC governments, mitigating regulatory unpredictability.
3. Legal Safeguards: Include clauses in contracts to address sudden policy changes and leverage international arbitration mechanisms.
4. Monitor EACJ Litigation: Track EALS’s petition against Tanzania to gauge the bloc’s commitment to integration and its impact on investor rights.

Conclusion: The EAC’s Crossroads Demands Prudence

The EAC’s cross-border investment boom is not over, but its trajectory is now clouded by Tanzania’s authoritarian turn. Investors who ignore these geopolitical tremors risk significant losses. The time to act is now: reassess exposure to politically volatile sectors, leverage legal safeguards, and prioritize stability-driven opportunities. The East African dream is still alive—but only for those prepared to navigate its new realities.

Act decisively—before the crossroads become a dead end.