Tanzania’s central bank last week revoked the licenses of five “critically undercapitalised” community banks to protect financial stability in East Africa’s No. 3 economy.
There are about 40 commercial banks and a dozen community banks, which target savings from specific communities or sectors such as farming, but the financial sector is largely dominated by just a handful of big banks.
The central bank said it would liquidate the Covenant Bank for Women (Tanzania) Ltd, Efatha Bank Ltd, Njombe Community Bank Ltd, Kagera Farmers’ Cooperative Bank Ltd and Meru Community Bank Ltd.
“The aforesaid banks are critically undercapitalised,” the central bank said in a statement.
It said continuation of operations of the banks in their current capital position was “detrimental to the interests of depositors and poses a risk to the stability of the financial system.”
The closure of the banks comes after President John Magufuli ordered the central bank to take action against failing financial institutions. This brings to eight the number of banks whose business licences have been cancelled since 2017.
Analysts said a steep increase in bad loans coupled with a sharp decline in credit to the private sector are threatening to undermine economic growth. The central bank announced new rules last June for capital buffers, a move that will force banks to hold more capital to withstand financial shocks following a sharp rise in non-performing loans.
Tanzania’s economy grew at an annual rate of 6.8 percent in the first half of 2017 from 7.7 percent in the same period in 2016. The International Monetary Fund said last month Tanzania’s banking sector was well-capitalised, but some small and mid-sized banks faced a sizable reduction in capitalisation ratios.
The continent of Africa is rich in natural resources and boasts of a wide variety that makes it an intriguing place to invest and look into for business opportunities. Wildlife and tourism have played a major part in inviting a number of entrepreneurs and tourists to the mass of land, bringing revenue to the countries visited.
There has been a concern over the years, however, with illegal activities coming into play. Issues such as poaching have hampered tourism in Africa but government bodies are looking into the matter to ensure there is safety for the animals and that poaching is discouraged for the benefit of the country affected.
There have been cases of illegal fishing as well that has surfaced on the water bodies. East African country Tanzania has been the latest state to address the issue. The sub-Saharan country has raised the awareness as it continues to look sharp in the fishing industry but few cases yet to be looked into hamper it from taking its fishing market to the next level.
The state realized a drastic decline of fish stocks in the Indian Ocean, its mass water body. The awareness has been courtesy of a rise in illegal fishing, which now seems to be a serious issue that endangers its economy.
The use of dynamite in the deep sea fishing has been catalyzed with the users being mostly pirates. According to the reports filed, the illegal fishing by the pirates has accounted for most of the loss of endangered species that has dragged down the fish stocks.
It is estimated that fish catches declined to at least 360,000 tonnes in 2016 from an average 390,000 tonnes over the past four years. Tanzania's total demand is 730,000 tonnes of fish per year.
With this on the surface, it is believed that the local companies of the state have settled for imported fish from China. Reports suggest that 2,000 tonnes of mackerel fish enter the African country monthly from the Asian country.
Credit: The Exchange
The Tanzanian mainland is marking the 56th anniversary of independence from British rule. The mainland unified with Zanzibar in 1964 to create the current nation-state under Mwalimu Julius Nyerere who is often invoked as “the father of the nation”.
The new nation-state’s economic, social and political path was paved in 1967, when Nyerere proclaimed the Arusha Declaration. This led to the nationalisation of key industries and the total reorganisation of rural life. Communal farming and forced resettlement were applied, justified on the basis of attempting to bring about self-reliance.
Referred to as ujamaa, the socialist-inspired policies dominated the politics, society, and economy of Tanzania until Nyerere’s retirement in 1985.
Ujamaa policies are much debated. Generally, they are seen as something of a social success but as economically ruinous. By emphasising Tanzanian citizenship, ujamaa created a sense of unity and effectively removed the kind of ethnic politics that dominates Kenya, for example. But it short-circuited the economy and saw food production collapse.
Nyerere’s handpicked successor Ali Hassan Mwinyi Tanzania practically reversed all the earlier policies. His government moved from one of the most influential and vehement defenders of African Socialism to one of the most neoliberal regimes on the continent. As Pitcher and Askew thoughtfully assert, this really put the “self” in “self-reliance”.
This openness to investment and trade was further enhanced with the introduction of multipartyism in 1995. Under both Presidents Mkapa and Kikwete, the country generally remained economically liberal. It also remained investment friendly with significant levels of foreign investment when compared to the socialist period.
But sweeping change has come under the current President John Pombe Magufuli, who has just entered the third year of a five-year term. Magufuli has taken a different approach to that of his recent predecessors and is harking back to policies advocated by Nyerere. Comparisons between the two are commonplace, both positive and negative. This is particularly so when it comes to natural resources.
Perhaps the most contentious area today is the mining sector and the role of the contemporary government in seeking better returns from mining companies. This move has the hallmarks of a policy of resource nationalism. This is a sign of a shift in policy as well as rhetoric.
Opening a closed economy
Tanzania was close to bankrupt after the economic collapse of the 1970s and the conflict with Idi Amin’s Uganda in the late-1970s. The latter years of Nyerere’s presidency were marked by his continual attempts to resist IMF assistance which involved signing up to a structural adjustment package. This was mainly down to his concerns over dramatic cuts to social provision.
The first programme was finally implemented in 1986 under Mwinyi whose presidency was marked by Tanzania’s economy opening up and dramatic reductions in social expenditure.
Multi partyism also arrived in Tanzania. The first multiparty elections in 1995 were won by Benjamin Mkapa who remained in power for the next 10 years. Another 10 years followed under Jakaya Kikwete until 2015.
During this period foreign investment has come in many sectors, but especially in tourism and mining. A significant part of the financial inflows came from post-apartheid South Africa.
“The Bulldozer” approach
“The Bulldozer” Magufuli is Tanzania’s fifth president, and the fourth since multiparty elections. As he enters his third year, there are strains of authoritarianism in Magufuli’s approach which bear the hallmarks of Nyerere. For example, he seems to have centralised power within the executive branch of government.
At the same time, he seems to be placing himself more closely to the socialist era of Tanzanian politics than anything since Nyerere.
Both approaches seem politically acceptable to Tanzanians – as long as they generate results. Nevertheless, Magufuli’s approval ratings fell to 71% in June from a high of 96% last year.
It’s still unclear what effect his recent attempts to claw back revenues from multinational mining giants will have on his rating.
New regime for mining
In the Arusha Declaration, Nyerere describes natural resources as owned by all citizens and held in trust for their descendants. When the new mining laws were passed in July, Magufuli said:
We [Tanzanians] must benefit from our God given minerals and that is why we must safeguard our natural resource wealth to ensure we do not end up with empty mining pits.
The new laws raise royalties on tax for gold, copper, silver and platinum exports from 4% to 6%. This is a nominal increase perhaps but an indication of a different direction of travel. Expectations are that such changes will soon be introduced for tanzanite and diamonds.
Following the new laws the government agreed a 50-50 profit sharing arrangement with Barrack Gold as well as a minimum government of stake 16% in all mining activities. Gold generates around a third of the country’s export revenues.
The new mining laws aren’t akin to the nationalisation of 50 years ago. But Magufuli has described the agreement with foreign investors as groundbreaking and a model to be adopted elsewhere across the continent.
The long term impact of mining reforms are yet to be felt. Claims from multinational corporations that the new laws threaten future investment may well prove to be overblown. As might the opinion pieces in The Economist suggesting Armageddon for the sector in Tanzania. But, certainly from some quarters, the view is that Magufuli has managed the process well.
On the other hand, his bulldozing style has seen his popularity decrease. It has also seen critics express their views over his presidency more forcefully.
A balance sheet of positives and negatives is perhaps the most striking similarity with the legacy of Nyerere as Tanzania marks yet another independence anniversary.
I would like to thank Alessia De Vito for her blog as part of our African Politics course at the University of East London. It certainly informed my ideas for this article.
The Kipembawe Division is hidden in the southern highlands of south-west Tanzania, a long seven-hour drive north from the city of Mbeya. The scenery is stunning, yet when you look closer you can see that tobacco plants dominate agricultural areas, and the sound of trees being felled is a constant background noise.
Just the word “tobacco” conjures up vivid imagery of death and disease, as depicted on graphic cigarette packets and through hard-hitting anti-smoking campaigns. But tobacco’s impact starts long before it is found wrapped in a cigarette, and affects many more people than the estimated one billion smokers worldwide.
Tobacco also impacts the health and well-being of the people who grow it and the environment where it is grown, often with devastating consequences. My colleagues and I have recently published research demonstrating just how damaging it can be to the environment and communities in rural Tanzania.
Most villages in Kipembawe don’t have electricity or mobile phone coverage. There are minimal healthcare facilities, and water is obtained from wells and rivers. There are few crops people can grow to make money and the dominant one is tobacco, farmed by 86% of the 196 households we surveyed. In Tanzania, 47% of the population lives below the international poverty line and rural poverty rates are even higher, where most people are reliant on agriculture.
In Africa, tobacco cultivation is often associated with the presence of a dry tropical woodland called “miombo”, which dominates Kipembawe. Miombo woodland covers over 2.4m km² in Africa, but is undergoing rapid deforestation and degradation throughout its range. Both tobacco and miombo trees like sandy, slightly acidic soils.
Unfortunately, these soils don’t contain many nutrients, and tobacco is one of the most nutrient-hungry crops there is. This means farmers must clear more woodland almost every year to create new fields, because the land can only support one or two cropping cycles.
For tobacco leaves to be preserved for transportation and further processing they must be dried or cured. This places another burden on the trees, which are used for fuel. In total, approximately 4,134 hectares of woodland are cleared annually within Kipembawe. This reduces biodiversity and the benefits the local environment can provide people, including carbon storage, firewood, building materials and fresh water.
Risks to farmers
But woodland clearance is just the start of the process. Throughout the growing season, farmers apply several rounds of fertiliser and pesticides to the crop, yet few farmers understand the risks associated with their use. During our time in Kipembawe, we didn’t see anyone using protective clothing or equipment, exposing farmers, families and labourers to harmful chemicals.
What’s more, despite regulations that aim to reduce the impact of fertilisers on water sources, the crops are often initially grown close to rivers so that the distance to carry water is shorter. This means the only source of drinking water for livestock can become contaminated, causing conflict between livestock keepers and tobacco farmers.
Child labour within tobacco growing is a also well-known issue, and the main tobacco organisations have joined the Eliminating Child Labour in Tobacco Growing Foundation. But we saw children working in the fields, and evidence from primary schools indicates that children are likely to start working on their parents’ fields from around the age of 13.
While this has obvious consequences for their education, there are also severe health impacts. Green tobacco sickness is a form of nicotine poisoning that occurs when the tobacco leaves are wet and contact the skin. Nicotine is absorbed through the skin, and leads to fever, vomiting and dizziness. While it rarely results in death it can be extremely frightening to children, who are more susceptible to severe symptoms due to a lack of nicotine tolerance and smaller body size.
Little other choice
So why do farmers grow tobacco? Many people have few alternative ways to make a living and farmers can get a good price for top quality tobacco. This money can significantly improve the lives of the farmers, enabling them to pay school fees, invest in other businesses, and afford bicycles and solar electricity.
Some men spend their money during the weeks after harvest drinking in the local pubs and pop-up bars which emerge. Canny women brew home beer from maize, and make a roaring trade. But prostitutes also flock to the area around this time, raising the risk of STI transmission. HIV rates in Mbeya are the third highest in the country, with nine per cent of 15-49 year olds testing positive for HIV – four per cent higher than the national average.
Despite the 2005 World Health Organisation’s Framework Convention on Tobacco Control and falling smoking rates, global population growth means total tobacco use looks likely to keep rising in the foreseeable future. But in Kipembawe, the deforestation associated with tobacco cultivation will ultimately make production unviable because there will be no fuel left to cure the crop. This will leave the community without a significant source of income and a degraded environment.
If people had other ways to make their living, it would help reduce the social and environmental burdens of tobacco production, but opportunities are limited. Tobacco production could be made more sustainable using alternative drying methods, reforestation, more efficient use of fertilisers and pesticides and land use management plans. But extensive training and support is needed, and child labour must be eliminated.
All of this will be difficult while there is such great demand for tobacco. So next time you think about lighting up, remember it’s not just your health at risk. Kicking the habit could save both trees and children’s chances.
A new era of agriculture has unveiled with the latest cash crop soaring on the surface of the sphere. Tanzania is set to get competitive in cotton farming, with its season kicking in at such a favorable time for the country's economy.
Geita Region is delighted to make the debut of the crop for the 2017/18 that was opened under 196, 373 acres. The land is set to be cultivated in contract farming, an effective methodology for the crop.
With this launch, Tanzania will get more competitive in the agricultural sector. It is a smart move by the government to expand its territories in the agricultural sector, venturing into varieties of export commodities to better the economy and strengthen the sector as well. This will earn the country great revenue to boost other sectors and expand them.
In the launch, that was conducted by the region's Regional Commissioner (RC), Mr. Roberts Luhumbi, he expects more than 66,000 cotton farmers to contribute to the planting and cultivation of cotton in the final stages of this year. The new cotton plating season that was hosted in Buharahara Village is hopeful of striving through the market by next year and achieve their goals.
The RC assured the farmers that the government has put a thumb for the go-ahead of cotton farming and will support the farmers and the project to the latter to see the success of the plantation.
The farmers' wellbeing is another aspect the government is looking to cater for hence giving them the opportunity to invest their human resource in the new venture. The government is hoping to lift the standards of the farmers through the cotton cultivation.
The nation is as well looking to provide raw materials for the textile industry. The demand will find the optimum supply with the government's plan and quench the thirst for their need in the industries.
During the 2016/17 plan for the cotton farming calendar, the area had planned to cultivate almost 67, 002 hectares of land with an estimated production of 93,343 tons of cotton. Unfortunately, the farmers were able to till 24, 791 of the land with an emergence of 13,267.82 tons of cotton seeds. The seeds were estimated to be worth Tshs. 15,926,181,600.
One of the challenges the RC addressed was the lack of technology to be applied such as fertilisers and believed their presence would bring a massive difference for them. A number of farmers have lamented on the availability of such resources that reduce their yields by significance percentage.
The RC has admonished the use of urea and di-ammonium phosphate that the government will affordably sell to them to increase their harvests. He as well requested for the supervision of the cultivation and ensures the productivity level is not tampered or compromised with. He has commissioned the District Commissioners (DCs) to see the welfare of the farmers well maintained.
Cotton is the main cash crop that is being cultivated in the region bringing in a fortune to the farmers. Most harvest their income from that to meet their basic necessities and maintain their living standards.
Geita RC has applauded the civil servants in their commitment to invest in the farmers by giving them educational services. He has urged them to continue in the same to enhance better farming practices for improved yields.
The civil servants will help boost the farmers' individual income by the best farming practices they can equip them with and facilitate the industrialization sector in the country.
Source: The Exchange
There were scarcely any hints of the tumultuous years that would follow the swearing-in of Dr John Pombe Magufuli on 5th November 2015 as Tanzania’s fifth president. After all, his Chama cha Mapinduzi (CCM) had been in power for decades, and his victory seemed to herald continuity with the past.
In fact, Magufuli’s opponent attracted more attention during the campaign than Magufuli himself. When Edward Lowassa defected from CCM to the opposition and ran for president against his old party, it looked fleetingly as though this elite split might spell the end of CCM’s dominance.
But Magufuli has not brought continuity, but dramatic change. He began to impress just days after his inauguration. He made a snap unannounced visit to the Ministry of Finance on his first day as president. Then he pulled funds intended for Independence Day celebrations and redirected them to anti-cholera operations. He began a shake-up of the Tanzania Port Authority, and extended it to the Tanzania Revenue Authority as he launched a tax collection drive. An audit of the public payroll led to a purge of “ghost workers”. Quickly, it became apparent that he was genuinely waging war on corruption in the Tanzanian state.
The primary victims of these anti-corruption operations have been mid- and low-ranking civil servants. However, Magufuli has taken on high elites in CCM selectively too. In May, he fired Minister of Energy and Minerals Sospeter Muhongo. This June, CCM MP Andrew Chenge found himself in court, facing government prosecutors in court. Both were linked to a major corruption case, the Escrow Scandal in 2014.
This thrift and intolerance for corruption won Magufuli attention and admiration worldwide. In the social media sphere, commentators celebrated his zeal playfully with the hashtag, “#WhatWouldMagufuliDo”.
But since early 2016, it has become apparent that Magufuli is not just waging war on corruption – he was also declaring war on democracy.
War on democracy
Magufuli has overseen numerous closures and suspensions of media outlets. His officials have encouraged and tried to exacerbate a split in the Civic United Front, by backing one side. His government has undermined judicial and parliamentary independence, implemented a partial ban on public rallies, harassed MPs, closure of online political space, and prosecuted critics under new defamation and sedition laws.
Together, these constitute major infringements on the freedom of expression and the opposition’s ability to communicate with voters.
In March this year he announced at a press conference that:
Media owners, let me tell you: ‘Be careful. Watch it. If you think you have that kind of freedom — not to that extent’.
In part, this repressive streak is a return to form. CCM has a long history of authoritarianism. It has ruled Tanzanian uninterrupted since 1977, and its predecessor parties ruled Tanganyika since 1961.
But there is a more immediate reason that Magufuli is tightening the noose on the opposition. The opposition has never been so strong. In 2005, CCM’s Jakaya Kikwete won the presidential election with an unassailable lead of 68% over the runner-up. By 2015, CCM’s margin of victory had been shortened to 18%. For the first time in Tanzania’s history, the opposition is a force to be reckoned with.
The most plausible explanation for Magufuli’s authoritarian turn is that he is trying to minimise the possibility of an opposition victory in the future. Equally, every time he advances the anti-corruption agenda, he makes more enemies who might defect to the opposition. By narrowing space for opposition, he reduces the risk of them doing so.
But Magufuli is not only relying on repressive means to stay in power. He is also pursuing a programme that revives his popularity.
The Magufuli way
The third and most recent theme in Magufuli’s presidency has been a confrontation with multinational mining companies.
The controversy was kick-started this is the alleged discovery that Acacia Mining has been under-reporting of mineral exports earlier this year. Magufuli has argued that multinational mining companies have been stealing Tanzania’s resources for years.
Based on these claims, the government charged Acacia Mining with fines and back-dated taxes amounting to USD$190 billion. Magufuli even threatened to nationalise the mines. His strategy of brinkmanship worked. On October 19th, Acacia’s parent company Barrick Gold announced that it had reached an agreement with the Tanzanian government. It promised to find ways to further process copper-gold ores in Tanzania, instead of exporting them for smelting, and it made a number of pecuniary concessions.
There is a strategic thread that ties together Magufuli’s actions.
Tanzania’s fifth Five Year Plan restores industrialisation to the heart of government policy in a way unseen since the 1970s. Domestic processing and tax revenue is central to that plan. So is government discipline, thrift and tax collection. The closure of political space keeps CCM in power to implement it, and suffocates internal opposition to his reforms.
But the definitive feature of Magufuli’s first two years has been a talent for pursuing his programme of reform while pursuing domestic popularity at the same time. His taste for the dramatic has caught public attention and his willingness to disturb the status quo has convinced many that his intentions are more sincere than those of his predecessors. Perhaps more than any other president since Tanzania’s founding father, Julius Nyerere, Magufuli is seen as a man of integrity.
While Magufuli has skilfully coupled popular politics with fundamental reform, he has also precipitated a series of unintended changes which may be slipping beyond his control.
His demands from companies have unquestionable merit, but they are also making businesses think twice about operating in Tanzania. For example, a number of oil companies are due to begin negotiations about developing off-shore gas fields. After the debacle with mining companies they know that they will not get an easy deal, but they may also doubt the word of a government that has in effect torn up contracts, and repeatedly placed the president at the centre of contract negotiation.
Equally, by putting such pressure on the opposition, Magufuli may make it stronger. Attempts to divide the second opposition party, the Civic United Front, may drive them closer to Chadema. They may also unintentionally make martyrs of the opposition. An attempted assassination attempt transformed opposition politician Tundu Lissu into a national hero.
It is not known who is behind the drive-by shooting that hospitalised Lissu, in which at least 28 shots were fired, but Lissu was among the most vocal opponents of the government. He was being tried in court for sedition just days before he was shot. No matter who was behind the attack, it is fast becoming the public image for the extremes of political change in Tanzania under Magufuli.
Many underestimated Magufuli at his inauguration two years ago, but few do now. While Magufuli’s election represents the continuation of CCM rule, he has brought about profound change. Only time will tell whether the intended or the unintended consequences of his actions will be those that define his legacy.
Acacia Mining said on Monday it would stop underground work at its flagship Tanzanian gold mine and cut its production guidance in the face of a confrontation between the industry and the government.
Shares in the FTSE 250 company plummeted 9 percent to 188 pence by 1000 GMT, making it the biggest decliner among an index of its peers. Acacia, majority-owned by Barrick Gold, said it would have to scale back operations at Bulyanhulu mine and cut staff as it coped with a government ban on exports of unprocessed ore, imposed in March to encourage the construction of a local smelter.
The ban had left a build-up of ore inventory and cut revenue as the firm met taxes and other bills, Acacia said in a statement. It had already cut costs, but the company was burning through cash and more action was needed.
"The impact of the ban, in addition to the deterioration of the current operating environment, has led to negative cash flow of approximately $15 million per month at the mine and thus has made ordinary course operations at Bulyanhulu unsustainable," it added in a statement.
Underground activity will cease and the processing of underground ore would stop within four weeks, under a programme "to preserve the viability of our business over the longer term," the company said.
Annual production is expected to be 100,000 ounces lower than the bottom of the previous guidance range of 850,000-900,000 ounces, it added. Acacia has been caught up in sweeping changes to Tanzania's mining industry spearheaded by President John Magufuli, who believes his country is not getting its fair share of profits.
The government also accuses Acacia of evading taxes for years by under-declaring exports - an allegation dismissed by the company which said in July it had been hit with a $190 billion tax bill, equivalent to four times the East African country's annual gross domestic product.
Despite the cash burn, Acacia's chief financial officer Andrew Wray said the company did not need additional financial resources or financial assistance from its Canadian parent Barrick.
"From our perspective we still have reasonable liquidity as on the balance sheet," said Wray said. "We're not contemplating looking beyond Acacia's resources at this time." A combination of scaling back Bulyanhulu, cutting corporate overheads, expansionary drilling at its largest mine North Mara, greenfield exploration activity and gold hedging should return Acacia back into cash generation next year, the miner said.
"Regrettably, the implementation of this programme will lead to a significant reduction in the workforce from the current 1,200 employee and 800 contractor roles," Acacia said.
Acacia first signalled intentions to mothball Bulyanhulu in June. "Acacia has implemented a sensible holding pattern – Bulyanhulu can be restarted without significant effort, but the company moves into a considerably more viable operational and financial position in the meantime," Investec analysts said.
"We expect this to now move the pressure onto the president – if he actually cares." Talks between the Tanzanian government and Barrick Gold are ongoing, Acacia said.
The Tanzanian government has asked Acacia Mining, a subsidiary of the world’s largest gold mining company Barrick Gold, to pay approximately USD$190 billion in revised taxes, interest and fines.
This latest development is a game changer in a dispute that pits mining companies against President John Magufuli’s government. It makes both nationalisation and mine closures more likely.
Until this revised tax notice was served, the overhaul of Tanzania’s mining regime had a great deal going for it. Previous policy had given miners an easy ride. Low taxes and generous license terms were sweetened by further tax breaks and exemptions.
Tanzania’s mining sector contributes nearly 3% to GDP annually. Tanzanite and diamond mines are scheduled to be joined by large uranium, coal and iron projects which are under development, but the largest operational mines produce gold. Acacia and AngloGold Ashanti run 4 large gold mines between them that extracted 37 tonnes of gold last year. According to the World Gold Council, Tanzania is the fourth largest gold producer in Africa.
Recently three laws were passed that squeeze the mining companies for revenue. They include shareholding entitlements, higher royalty rates and further tax rises.
The new legislation introduced sweeping new requirements intended to support the country’s industrial goals. Mining companies are now required to train Tanzanians, give preference to local suppliers and to source from joint ventures between domestic and foreign firms if domestic suppliers cannot be found. These rules mean additional costs for miners, but a boost for Tanzanian employees and firms that could become nascent industries.
While the new requirements were all painful for mining companies, they promised significant benefits for Tanzania and merited a try. Ultimately, engineers and economists will have to calculate whether mining companies can make those concessions without operating at a loss.
But the questions are technical and the answers are not well established. It’s possible that the mines could still be economically viable even after this policy overhaul.
Whether its tactics were good or not, the Tanzanian government had reasons for adopting a brazen approach to negotiations with the mining companies too. After it announced a series of changes in 2016, it was confronted by mining company intransigence. Their development agreements enshrined protections against all manner of intrusions and impositions. They seemed resolved to impede changes by resorting to delaying tactics, legal obstacles and arbitration.
But Magufuli’s decision to scrap development agreements between the government and mining companies and to prohibit international arbitration sent a clear message: companies didn’t have a lot of choice. His unilateral and combative approach smacks of domestic politics. But it could also serve to dissuade the mining companies from a course of resistance.
It showed mining companies how far the Tanzanian government was willing to go and how much they wanted. It quickly provoked concessions. Acacia agreed to some of the terms two weeks ago. But if it hoped these would placate Magufuli, they were wrong.
Counting to $190 billion
Until the tax bill was tabled, it seemed as though Magufuli wanted a new settlement with the mining companies. Now it looks as though he wants new mining companies.
To put the USD$190 billion figure in context, all the proven and probable gold in Acacia’s mines is worth just over USD$10 billion at today’s prices. Including sites under exploration and the further inferred and estimated deposits, there is a further USD$24 billion worth of gold, and further deposits of silver and copper.
After these minerals are mined and processed, profits will be just a fraction of that. And even if there is as much gold as guessed, it will take decades to liberate it. In short, Acacia can never make enough to pay USD$190 billion in taxes. It would close the mines before they paid a sum that tall.
The sum of USD$190 billion was reached in fines, interest and backdated tax revisions in light of two presidential committees. The first reported that Acacia had grossly under reported the amount of gold in containers of copper-gold concentrate bound for export. The second estimated the revenue that the government had lost over the years, and the tax demand takes that into account.
If the committee findings were correct, Acacia might be sitting on enough gold to pay up, but this is not likely. If the committee’s conclusions were true, Buzwagi and Bulyanhulu mines would be the second and third largest in the world. Tanzania would have produced not 55 tonnes of gold last year, but 154 tonnes. That would represent approximately 5% of world gold mine production. Sums of that scale affect shares, currency appreciation and even the world gold price, and that makes it unlikely that past production was kept secret as the committee suggests.
There are any number of reasons for the Tanzanian government’s decision to submit the tax demand – even if it doesn’t think that Acacia will ever pay. It could be a further bargaining ploy, a plea for attention, a failure of coordination or a strategic miscalculation.
But the most likely explanation is that this is part of a mounting campaign to drive the miners out of Tanzania altogether. Last week, Magufuli announced that if the mining companies continued to delay negotiations,
I will close all mines and give them to Tanzanians.
With every new development, this threat seems less and less an idle boast.
Tanzanian President John Magufuli said on Monday he has signed into law new mining bills which require the government to own at least a 16 percent stake in mining projects.
The laws, which also increase royalties tax on gold and other minerals, were passed by parliament last week despite opposition from the mining industry body. Magufuli reiterated on Monday that no new mining licences would be issued until Tanzania “puts things in order” and that the government would review all existing mining licences with foreign investors.
“We must benefit from our God-given minerals and that is why we must safeguard our natural resource wealth to ensure we do not end up with empty mining pits,” Magufuli told a rally in his home village in Chato district, northwestern Tanzania.
The president has sent shock-waves through the mining community with a series of actions since his election in 2015, which he says are aimed at distributing revenue to the Tanzanian people. The new mining laws, which were fast-tracked through parliament, raise royalties tax for gold, copper, silver and platinum exports to six percent from four percent.
They also give the government the right to tear up and renegotiate contracts for natural resources like gas or minerals, and remove the right to international arbitration. “I would like to thank parliament for making the legislative changes. I signed the bills into law the same day Parliament concluded its session on July 5,” Magufuli said.
Passage of the new legislation also followed months of wrangling between the government and the country’s biggest gold miner, London-listed Acacia Mining Plc, over mining contracts after Magufuli decided in March to ban exports of gold and copper concentrates to push for the construction of a domestic mineral smelter. Magufuli said on Monday that talks between Tanzania and Barrick Gold Corp., Acacia’s majority owner, would begin in two days to try to resolve allegations of tax evasion against Acacia.
Tanzania accused Acacia of tax evasion in 2016 in a case that is ongoing. Acacia, which denies all allegations, said on July 4 it was seeking an adjudicator to resolve its dispute with the Tanzanian government.
Tanzania is also pushing for the mandatory listing of mining companies on the Dar es Salaam Stock Exchange (DSE) by August as part of measures aimed at increasing transparency and spreading wealth from the country’s natural resources.
Other major foreign-owned mining companies in Tanzania include AngloGold Ashanti and Petra Diamonds.
Aliko Dangote is now a coal miner as Tanzania has offered his Dangote Cement Company in the southeastern town of Mtwara, land to mine coal for its operations.
Tanzania’s Ministry of Energy and Minerals at the weekend handed a 10-square-kilometre plot of land to the $500 million cement factory set up in 2015 by Aliko Dangote, Africa’s richest man. The factory has an annual capacity of 3 million tonnes.
According to NAN and local media The Citizen, the coal concession was sanctioned by President John Magufuli to allow the company get a reliable supply of coal to fuel its activities.
Tanzania has banned the importation of coal from South Africa and Tancoal, the only one coal producing company in the country, cannot meet the entire market demand. Dangote runs on expensive diesel generators and requested Tanzanian government support last year to supply natural gas at a reduced price.
President Magufuli later intervened after a meeting with Nigerian billionaire and the company’s owner Aliko Dangote over stalled negotiations on prices.
He blamed middlemen for the delay in supply plans and said Dangote “will now buy natural gas directly from the state-run TPDC (Tanzania Petroleum Development Corporation)”. Dangote, Africa’s biggest cement producer, is seeking to double Tanzania’s annual output of cement to 6 million tonnes. It plans to roll out plants across Africa.