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Tanzania`s mining boom: What is behind the scenes?
By Correspondent
9th July 2010
The disproportional little contribution of the mining boom to Tanzania's economic growth of between 2.8 per cent and 3.2 per cent shows that the sector is not integrated into the national economy.
A SPECIAL CORRESPONDENT says that this points to a lack of investments into the type of infrastructure that is necessary to develop value added economic activities such as the local transformation of raw products before export. Therefore, a clear strategy with plans on how the extractive industries sector can promote wider industrial development is needed. Read on
By Bubelwa Kaiza
Over the last decade, East Africa and especially Tanzania has been experiencing a rapid expansion of exploration and extraction activities for minerals, oil and gas alike.
Without the wider world taking much notice, by 2008 Tanzania had become Africas third-largest exporter of gold; accounting for as much as 44 per cent of the countrys value of exports. An export drop to 50 tones in 2009 now places Tanzania at the fourth position after South Africa, Ghana and Mali.
Other export minerals that significantly contribute to the countrys foreign earnings are tanzanite (a semi-precious stone unique to the country) and diamonds. Titanium, nickel and iron ore are available in plenty but not extracted yet, mainly due to insufficient electric energy supply. Uranium estimated at 53.9 million pounds, worth $2.2bn, is the latest discovery in central and southern Tanzania that is scheduled for extraction in early 2012.
Tanzania is also witnessing an increase in oil and gas exploration activities. Currently more than 20 foreign companies are involved in petroleum exploration alone. Some of the natural gas deposits are already being exploited in the Songo-Songo gas field and used to generate electricity for local consumption.
The commodity boom in Tanzania provides for broader developmental opportunities in a hitherto mainly agricultural economy, in which more than 85 per cent of its 40 million population lives below the poverty line. Despite its relatively short existence, the extractive industries sector has already begun to re-shape the countrys politics and society though not always positively.
Governance issues in Tanzanian extractive industries sector
The growth of commodity exploration and extraction in Tanzania has resulted in a range of governance challenges, provoking increasing public concern and debates.
There is a widespread perception that corruption relating to the extractive industries sector is on the increase. In fact, Tanzanias rating in Transparency Internationals Corruption Perception Index (CPI), that had shown some improvements until 2007, fell remarkably over the last couple of years to levels closer to its East African neighbours, Uganda and Kenya.
While it is important to note that the CPI does not necessarily imply corruption associated to extractive industries alone - public procurement, for instance, is regarded as incubator of grand and political corruption in Tanzania - poor performance in terms of transparency is a well known phenomena in resource-rich countries across Africa.
A major reason for public distrust is the lack of transparency around the so called Mining Development Agreements (MDAs) that government signed with global mining companies. The MDAs are strictly confidential agreements that give mining companies preferential rights. The 1998 Mining Act, generally believed to have facilitated shoddy MDAs, gives the Minister for Energy and Minerals the power to enter into these agreements without being bound by the advice of the Mining Advisory Committee and unchecked by public scrutiny, which makes them a breeding ground for corruption. The fact that in 2007 the then Minister signed a MDA that had been declared unbeneficial by the Advisory Committee outside the country fuelled further suspicion.
Public sentiment is that the MDAs contain unnecessary tax incentives and stabilization clauses and are silent on crucial aspects such as transfer pricing, ring fencing, windfall taxes, and time limits for tax exemptions, all of which deprive the country of its fair share from the exploitation of mineral resources.
Royalties, their rate and how they are calculated, have been another controversial point in this context. Currently, MDAs provide for a mere 3 per cent (gold) royalty based on the net instead of gross revenue of the mining companies. This means that government only receives revenue from royalties after subtracting costs on transportation and processing instead from the amount that the minerals are sold for in the market.
Understandably, such negatively skewed fiscal regime remains detrimental to the erstwhile expected economic and social gains from extractive industries.
In addition, the disproportional little contribution of the mining boom to Tanzania's economic growth of between 2.8 per cent and 3.2 per cent shows that the sector is not integrated into the national economy.
It points to a lack of investments into the type of infrastructure that is necessary to develop value added economic activities such as the local transformation of raw products before export. Therefore, a clear strategy with plans on how the extractive industries sector can promote wider industrial development is needed.
However, even the recently passed new Mining Bill, despite its attempt to address anomalies in the earlier legislation through, for example, higher royalties, MDA reviews after five years and restricting gemstone mining to local ownership, lacks this 'bigger picture'.
Furthermore, the new law is not clear on compensations for communities that have been evicted from their home areas to allow mining activities to take place. Nor is there a policy or law to guide and regulate Corporate Social Responsibility (CSR) in the country.
Meanwhile, tensions between foreign mining companies and local communities are growing, with serious environmental, labour and human rights concerns being raised. The Tanzania Mineral Workers Association (TAMICO), for instance, has constantly engaged the Canadian-based mining house Barrick Gold Corporation on their alleged poor treatment of local employees. Moreover, in 2009 at the companys North Mara gold mine heavy metals and toxic chemicals have reportedly leaked into the river Thigite. The incident has since become a bone of contention and source of conflict between locals and the mining business.
While humans and animals using the river have been seriously affected by its contamination, Barrick Gold has denied any wrongdoing and government remains inactive. Remarkably however, the government chemist has since not published the report on river Thigite water contamination levels.
It is against this background that various local and international initiatives, aiming at improved transparency and accountability in Tanzanias extractive industries sector, have been launched in the country.
Approaches towards improving governance of natural resources
Since the late 1990s, governance issues around extractive resources have received increasing international attention. This was based on the growing recognition that, especially in countries with an overall poor governance record and weak institutions, mineral wealth frequently did not translate into development. Instead sudden mineral export booms in many cases led to severe economic imbalances and rising corruption. In some cases, they even fuelled violence and armed conflict. These and related phenomena are collectively known as the resource curse.
Various measures have been designed to address these problems. With regards to problems of corruption and misuse of revenues resulting so frequently from the extractive sector, two major international initiatives have emerged: the Publish What You Pay (PWYP) campaign and the Extractive Industries Transparency Initiative (EITI). Both initiatives aim to increase transparency and accountability, but pursue these objectives in different ways.
Launched in June 2002, PWYP is an international campaign and global civil society movement / coalition. PWYP calls for mandatory disclosure of tax, fee and royalty payments made by oil, gas and mining companies to governments for the extraction of natural resources on a country-by-country basis, as a necessary first step towards a more accountable system for the management of revenues in resource-rich developing countries, and for the reduction of poverty and corruption in these places.
EITI, on the other hand, is a voluntary multi-stakeholder initiative involving multinational and state-owned extractive companies, host governments, home governments, business and industry associations, international financial institutions, investors and civil society groups. EITI is a complex formalized process, involving several steps of auditing and reporting revenue flows. By April 2010, 31 countries worldwide were recognized as candidate or compliant, 20 of them in Africa.
In practice, both initiatives - while operating separately - share similar objectives and overlap to some extent, especially with regard to civil society actors who participate in national EITI processes. Tanzania, being one of the latecomers in the area of extractive industries, has been one of the most recent and the first East African country joining EITI.
SOURCE: THE GUARDIAN
By Correspondent
9th July 2010
The disproportional little contribution of the mining boom to Tanzania's economic growth of between 2.8 per cent and 3.2 per cent shows that the sector is not integrated into the national economy.
A SPECIAL CORRESPONDENT says that this points to a lack of investments into the type of infrastructure that is necessary to develop value added economic activities such as the local transformation of raw products before export. Therefore, a clear strategy with plans on how the extractive industries sector can promote wider industrial development is needed. Read on
By Bubelwa Kaiza
Over the last decade, East Africa and especially Tanzania has been experiencing a rapid expansion of exploration and extraction activities for minerals, oil and gas alike.
Without the wider world taking much notice, by 2008 Tanzania had become Africas third-largest exporter of gold; accounting for as much as 44 per cent of the countrys value of exports. An export drop to 50 tones in 2009 now places Tanzania at the fourth position after South Africa, Ghana and Mali.
Other export minerals that significantly contribute to the countrys foreign earnings are tanzanite (a semi-precious stone unique to the country) and diamonds. Titanium, nickel and iron ore are available in plenty but not extracted yet, mainly due to insufficient electric energy supply. Uranium estimated at 53.9 million pounds, worth $2.2bn, is the latest discovery in central and southern Tanzania that is scheduled for extraction in early 2012.
Tanzania is also witnessing an increase in oil and gas exploration activities. Currently more than 20 foreign companies are involved in petroleum exploration alone. Some of the natural gas deposits are already being exploited in the Songo-Songo gas field and used to generate electricity for local consumption.
The commodity boom in Tanzania provides for broader developmental opportunities in a hitherto mainly agricultural economy, in which more than 85 per cent of its 40 million population lives below the poverty line. Despite its relatively short existence, the extractive industries sector has already begun to re-shape the countrys politics and society though not always positively.
Governance issues in Tanzanian extractive industries sector
The growth of commodity exploration and extraction in Tanzania has resulted in a range of governance challenges, provoking increasing public concern and debates.
There is a widespread perception that corruption relating to the extractive industries sector is on the increase. In fact, Tanzanias rating in Transparency Internationals Corruption Perception Index (CPI), that had shown some improvements until 2007, fell remarkably over the last couple of years to levels closer to its East African neighbours, Uganda and Kenya.
While it is important to note that the CPI does not necessarily imply corruption associated to extractive industries alone - public procurement, for instance, is regarded as incubator of grand and political corruption in Tanzania - poor performance in terms of transparency is a well known phenomena in resource-rich countries across Africa.
A major reason for public distrust is the lack of transparency around the so called Mining Development Agreements (MDAs) that government signed with global mining companies. The MDAs are strictly confidential agreements that give mining companies preferential rights. The 1998 Mining Act, generally believed to have facilitated shoddy MDAs, gives the Minister for Energy and Minerals the power to enter into these agreements without being bound by the advice of the Mining Advisory Committee and unchecked by public scrutiny, which makes them a breeding ground for corruption. The fact that in 2007 the then Minister signed a MDA that had been declared unbeneficial by the Advisory Committee outside the country fuelled further suspicion.
Public sentiment is that the MDAs contain unnecessary tax incentives and stabilization clauses and are silent on crucial aspects such as transfer pricing, ring fencing, windfall taxes, and time limits for tax exemptions, all of which deprive the country of its fair share from the exploitation of mineral resources.
Royalties, their rate and how they are calculated, have been another controversial point in this context. Currently, MDAs provide for a mere 3 per cent (gold) royalty based on the net instead of gross revenue of the mining companies. This means that government only receives revenue from royalties after subtracting costs on transportation and processing instead from the amount that the minerals are sold for in the market.
Understandably, such negatively skewed fiscal regime remains detrimental to the erstwhile expected economic and social gains from extractive industries.
In addition, the disproportional little contribution of the mining boom to Tanzania's economic growth of between 2.8 per cent and 3.2 per cent shows that the sector is not integrated into the national economy.
It points to a lack of investments into the type of infrastructure that is necessary to develop value added economic activities such as the local transformation of raw products before export. Therefore, a clear strategy with plans on how the extractive industries sector can promote wider industrial development is needed.
However, even the recently passed new Mining Bill, despite its attempt to address anomalies in the earlier legislation through, for example, higher royalties, MDA reviews after five years and restricting gemstone mining to local ownership, lacks this 'bigger picture'.
Furthermore, the new law is not clear on compensations for communities that have been evicted from their home areas to allow mining activities to take place. Nor is there a policy or law to guide and regulate Corporate Social Responsibility (CSR) in the country.
Meanwhile, tensions between foreign mining companies and local communities are growing, with serious environmental, labour and human rights concerns being raised. The Tanzania Mineral Workers Association (TAMICO), for instance, has constantly engaged the Canadian-based mining house Barrick Gold Corporation on their alleged poor treatment of local employees. Moreover, in 2009 at the companys North Mara gold mine heavy metals and toxic chemicals have reportedly leaked into the river Thigite. The incident has since become a bone of contention and source of conflict between locals and the mining business.
While humans and animals using the river have been seriously affected by its contamination, Barrick Gold has denied any wrongdoing and government remains inactive. Remarkably however, the government chemist has since not published the report on river Thigite water contamination levels.
It is against this background that various local and international initiatives, aiming at improved transparency and accountability in Tanzanias extractive industries sector, have been launched in the country.
Approaches towards improving governance of natural resources
Since the late 1990s, governance issues around extractive resources have received increasing international attention. This was based on the growing recognition that, especially in countries with an overall poor governance record and weak institutions, mineral wealth frequently did not translate into development. Instead sudden mineral export booms in many cases led to severe economic imbalances and rising corruption. In some cases, they even fuelled violence and armed conflict. These and related phenomena are collectively known as the resource curse.
Various measures have been designed to address these problems. With regards to problems of corruption and misuse of revenues resulting so frequently from the extractive sector, two major international initiatives have emerged: the Publish What You Pay (PWYP) campaign and the Extractive Industries Transparency Initiative (EITI). Both initiatives aim to increase transparency and accountability, but pursue these objectives in different ways.
Launched in June 2002, PWYP is an international campaign and global civil society movement / coalition. PWYP calls for mandatory disclosure of tax, fee and royalty payments made by oil, gas and mining companies to governments for the extraction of natural resources on a country-by-country basis, as a necessary first step towards a more accountable system for the management of revenues in resource-rich developing countries, and for the reduction of poverty and corruption in these places.
EITI, on the other hand, is a voluntary multi-stakeholder initiative involving multinational and state-owned extractive companies, host governments, home governments, business and industry associations, international financial institutions, investors and civil society groups. EITI is a complex formalized process, involving several steps of auditing and reporting revenue flows. By April 2010, 31 countries worldwide were recognized as candidate or compliant, 20 of them in Africa.
In practice, both initiatives - while operating separately - share similar objectives and overlap to some extent, especially with regard to civil society actors who participate in national EITI processes. Tanzania, being one of the latecomers in the area of extractive industries, has been one of the most recent and the first East African country joining EITI.
SOURCE: THE GUARDIAN
