Tanzania and the Economics of Minerals

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This article is from our April-June edition of Around Africa, by Sebastien Porter, Intern

Even though tensions occur every election cycle, for two decades now Tanzania has enjoyed a relatively peaceful transfer of power, a sign of a democracy-in-the-making. Different political views are represented and expressed through a stable multi-party system.

According to Revenue Watch Institute, over the years, Tanzania has sustained a strong economy. Since 2001, its Gross Domestic Product (GDP) has grown by 7% a year on average. Annual inflation, which had averaged 30% between 1980-2000, has fallen to an average of 7% in recent years.  Tanzania has a tremendous natural resource wealth: diamonds, coal, soda ash, nickel, platinum and various gemstones. Its mining sector is expected to grow at an average of 7.7% for the next five years.  However, Tanzania’s mining sector accounts for nearly half of the country’s exports and only constitute 3.6% of tax revenues.

Unlike its neighboring nations, the Democratic Republic of the Congo, Burundi and Rwanda, (which have experienced long years of wars) and despite its wealth, 90% of the Tanzanians live under $2 per day. Furthermore, 5.6% of the population suffers from HIV. The Tanzanian government has yet to take advantage of the country’s peace and its abundant natural resources to tackle poverty and put the nation on a path to lasting prosperity.

After its independence, Tanzania nationalized industries and collectivized land by forcibly removing peasants from their traditional areas and relocating them to other areas. The effects were devastating to the Tanzanian economy and crop production fell. Foreign investment disappeared with subsequent declines in mining investment. All these measures were accomplished by the mid 1970s. Western countries began to see Tanzania as slowly falling into the socialist camp, thus, the non-availability of Western funding led to seeking assistance from China, eager to export Maoism in early 1973. By 1979, Tanzania was facing the worst economic crisis since independence.
Like many African countries, Tanzania had to comply with International Monetary Fund (IMF) reforms which liberalized trade in the mid-80s. These reforms culminated with the 1997 Mineral Sector Policy, which emphasized the primary role of companies as mining operators, and the government as a simple regulator. As a result, these reforms have had a huge impact on the growth of the Tanzania mining sector over the past 15 years. This sector has been one of the fastest growing in the Tanzanian economy with an average growth rate of 12% per year. At the same time, liberalization of Tanzania’s economy has greatly favored mining companies. They received low royalty rates (3% on gold exports) and low taxes on imports of mining equipment. Also, the government can take no stake in the major gold mining operations, allowing foreign companies 100% ownership

In addition to these fiscal advantages, Tanzanian civil society has raised concerns over mining contracts and fiscal obligations. Against the huge tax concessions given to overseas mining companies, the civil society pushed for government review of the legal and fiscal rules governing the mining sector . This concern is a common problem across Africa as underlined by the Washington DC-based Advocacy Network for Africa’s (ADNA) 2011 Briefing Booklet to the US Congress (see lead article).

In November 2008, the Tanzanian government decided to join the Extractive Industries Transparency Initiative (EITI).  In 2009, following the Bomani Commission’s recommendations, it indicated that it was reviewing the national mining policy.  Following this review the government indicated that it would propose reforms to enhance the equitable distribution of the mining sector revenues.  On May 6, 2011 the IMF’s Executive Board biannual consultation with Tanzania stressed the importance of enhancing Tanzania’s taxation of the mining sector as a key for future economic prospects.

Multinational mining companies say they bring benefits to local communities such as employment, new technologies and local economic activity. But evidence on the ground shows that people living around mining sites are also poor. In fact, due to the expansion of the Geita Gold Mine, people were forcibly displaced and the financial compensation for about 900 people got lost in a corruption scandal. In addition, mistreatment of labor and water pollution affect not only people’s health but also livestock and agriculture. Severe sickness and death have been linked with the environmental problems caused by chemicals and heavy metals used in the mines.
Besides, large-scale gold mining put around 400,000 artisan miners out of work whose small incomes were essential to their families’ livelihood. Although the average pay of workers in multinational mining companies is higher compared to that of artisanal miners, they are few in number to make the same economic impact previously made by more traditional miners in the community.

Tanzania needs to implement mining tax reform so that its people can benefit from their sovereign right to their natural resources. Existing mining contracts must be made public and subject to parliamentary scrutiny. Also any mining contracts must take into consideration the needs and the rights of local people who will be affected by the lease of their land. Mining activities do eventually come to an end, so it is important that revenues generated are invested wisely into sustainable and long-term economic activities to improve people’s quality of life.

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