Tanzania: Who Should Shoulder the Blame for Rot in Mining?

23 NOVEMBER 2016
The Citizen (Dar es Salaam)

By Kelvin Matandiko

Dar es Salaam — Tanzania, sitting on a fortune of gold, diamonds and a vast of other much-sought-after minerals, is still listed among the ‘wretched of the earth’ – one of the poorest countries of the Third World. What exactly is to blame for this tragedy?

There is no one single answer to the question. According to analysts, years of bad policies and dubious mining contracts significantly contributed to the catastrophe.

But after the liberalisation of the economy, in came some “sly” investors, who have been accused of looting while giving “lame excuses” of a difficult operating environment in the country.

A few months ago, President John Magufuli read the riot act to the mostly foreign-owned mining companies operating in Tanzania — Africa’s fourth gold producer. Dr Magufuli ordered them to pack and their bags and leave if they were genuinely, perennially making losses.

And addressing a press conference at State House early this month, he expressed his disappointment again over the poor contribution of the mining sector to the national economy.

“Tanzania has a lot of minerals, but there have been a lot of funny deals…we have to look carefully at our laws so that we move forward as a country,” Dr Magufuli said in Dar es Salaam. He became the latest most senior person to express concerns over the contribution that multinational companies are making to the national economy after years of gold digging.

During a meeting with employees of the Bank of Tanzania (BoT) and the Ministry of Finance and Planning, Dr Magufuli decried the plethora of problems bedeviling mining suggesting that it was one of the most troubled and underperforming sectors in the country.

His beef with most of the mining companies in Tanzania is over their alleged failure to meet their end of their bargain in paying corporate taxes.

Tax evasion, corruption and mismanagement of the country’s natural resources have been at the core of the President’s agenda since he came to power last year.

He said the government recently approved new mining regulations aimed at ensuring that the benefits of the mining sector are shared more equitably between multinational mining companies and the state.

In recent years, some companies have also been at loggerheads with local government authorities accusing them of not being honest in declaring royalties.

The government passed a mining law in 2010 that increased the royalty paid on minerals like gold from 3 per cent to 4 per cent. It also required the government to own a stake in future mining projects.

The Mining Act requires mining firms to list on the Dar es Salaam Stock Exchange (DSE) and in September the government approved regulations to enforce that law.

Some companies cite falling global prices as one the major challenges they have been facing.

Gold exports alone earned Tanzania $1.27 billion in 2015, down from $1.32 billion the previous year, largely due to a fall in global commodity prices and output.

Mining analysts say the country has not fully benefitted from its resources mainly because of poor contracts and bad laws. There is also the question of transparency – some companies are said to be falsifying production and profit figures.

On the lack of transparency and disclosure of the mining companies, President Magufuli has said that some of gold mines operating in the country have private airstrips. The authorities were not able to monitor what the mining companies planes were transporting from the gold mines, out of Tanzania, he said.

Some major mining companies in Tanzania, including Acacia Mining Plc (previously known as African Barrick Gold), which has three gold-producing mines, reported losses early this year.

Acacia declared a net loss of $52 million (Sh104 billion) in the first quarter of this year after setting aside $70 million to settle an historic tax bill from the government.

The Tax Revenue Appeals Tribunal recently found the multinational company in tax arrears, and accused it of engaging in a “sophisticated scheme of tax evasion” since 2010.

The tribunal ruled that the mining firm failed to pay taxes while still paying more than $400 million in dividends to its shareholders from its gold-mining profits in the country. Mr Deo Mwanyika, vice president of North Mara Gold, Acacia’s Tarime-based mine, says due to the huge capital required to start the mine, it had been a challenge for the investors to break even.

“It was capital intensive, and there were various purchases to be made to expand production. So, since we started in 2003/04 till last year, it has been about recovering costs,” he said.

In January, this year, Williamson Diamond Mine was quoted by a local daily as claiming that its sales had declined by 18 per cent, despite a four per cent increase in the value of carats.

President Magufuli’s frustration over reports of losses by mining firms came as a little surprise. It remains to be seen how his administration, which has given the impression that it will leave no stone unturned in dealing with tax evasion, is going to tread this sensitive road.

A 2008 mining report revealed how the country was losing large amounts of money from foreign investment in the sector due to low royalty rates and generous tax exemptions.

The report published by a consortium of church-based groups exposed how contracts with so-called stabilisation clauses have locked the government into this tax regime for up to 50 years.

A Golden Opportunity? How Tanzania is Failing to Benefit From Gold Mining was commissioned by the Christian Council of Tanzania, the National Council of Muslims in Tanzania, the Tanzania Episcopal Conference, and financed by Norwegian Church Aid and Christian Aid.

“Gold mining is the fastest growing sector of Tanzania’s economy…Yet ordinary Tanzanians are not benefitting from this boom both because the government has implemented tax laws that are overly favourable to multinational mining companies and because of the practices of these companies,” said the report’s authors, Mark Curtis and opposition lawyer Tundu Lissu.

Some firms dismissed the report as advocacy by anti-mining activists. They argued that Tanzania’s investment laws were not out of step with the rest of the world.

Early this year, amid growing pressure and “negative media reports” on the activities of mining firms in the country, the Tanzania Chamber of Minerals and Energy (TCME), which represents member companies involved in the sector, sought to counter claims that the country has not benefitted much.

“The government benefits directly from royalty payments of 4 or 5 per cent depending on minerals produced which is charged on gross turnover (not on profit),” TCME chairman Ami Mpungwe noted in a press statement released on 13 April, this year. He also said the country’s rural communities stood out as one of the biggest beneficiaries of mining activities.

“As a result of mines that were constructed, rural communities have had access to power and water supplies where there none, thus enabling improvement of the quality of life that prior to the arrival of investors, might have seemed unattainable in rural Tanzania.”

Still, the TCME chairman is not oblivious to the fact that the mining sector has not met the expectations of the nation.

“We needed it to be the major contributor to the national economy, but instead it’s become a case of problems and chronic challenges,” he told a press conference recently.

SOURCE: http://allafrica.com/stories/201611230524.html

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