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Key challenges and the search for new directions in Tanzania’s mining sector

2017-04-06 19:33:35

By Paul Kibuuka @isidoralaw

THE conundrum facing Tanzania’s mining sector has its roots in the country’s colonial history. Today, fifty-six years after independence, integration of the sector into the national economy is still held back by a heavy focus on exportation of mineral sand concentrates for smelting abroad.

Besides the integration challenge, another key challenge lies in extraction activities being typified by remarkably weak linkages with the rest of the economy.

While it is well-documented that Tanzania is richly endowed with natural resources and currently ranks fifth in the league table of African gold producing countries, post-independence resource nationalism was a botched effort in addressing these challenges.

Following the 1970s and 1980s decline in Tanzanian mining, which was partially due to the 1978-79 Kagera War, a 1993 World Bank ‘Tanzania—Mineral Sector Development Technical Assistance Project’ proposed a raft of liberal reforms and programmes designed to attract much-needed mining foreign direct investment (FDI). 

Consequently, Tanzania changed its mining regime by formulating the Mining Policy of 1997 and enacting the Mining Act of 1998. Under the change, state participation in mining operations was abolished. This further entrenched exportation of mineral sand concentrates.

And then some national soul-searching about how to manage effectively Tanzania’s mineral sector began, taking a more serious tone after the commencement of the 2000s commodities boom, when former Tanzanian President Dr Jakaya Kikwete appointed the Bomani Commission on Mineral Sector Review in 2007.

The Commission’s recommendations culminated in the Mineral Policy of Tanzania, 2009—by which the state participates strategically in the ownership of mines—and the Mineral Act, 2010, both of which are still in effect today.

Tanzania’s mining legacy, considered with reference to current President Dr John Magufuli’s reiterated ban on exportation of mineral sand concentrates for smelting abroad, inevitably brings to the fore important issues about the contribution of mining to the country’s broader, long-term development goals.

Realising mineral linkages whilst minerals still exist

The presence of stronger linkages is vital for growth and development of a versatile economy that can significantly create employment, reduce poverty and generate value-added activities. 

For Tanzania to fully benefit from its mining sector, therefore, it must strengthen linkages by making a major effort to expand mineral extraction and to build up related industries; and at the same, earnestly add agriculture—the backbone of the country’s economy—into the growth and development equation.

In 2012, a study by the University of Dar es Salaam “The Role of Mining in Industrialization in Tanzania and Implications for Structural Transformation Agenda” revealed that a weak link existed between the mining and manufacturing sectors—reflecting the Tanzanian mining sector’s inclination to extracting and exporting mineral sand concentrates for processing abroad.   

A large infrastructure deficit, technological deficiencies and skills gap are some of the key challenges holding back Tanzania from strengthening mineral linkages. To strengthen linkages, Tanzania has to craft the right policies or strategic plans for leveraging extraction and processing of minerals into economy-wide development outcomes.

This would entail investments in power infrastructure—and more specifically: restructuring state-owned TANESCO to improve its performance and promoting investment in reliable generation, transmission and distribution of power.

Interventions are also needed for appropriately balanced incentives for the private-sector to legally structure mining projects in a manner that integrates the projects into the wider Tanzanian economy. And, of course, developing human capital and skills through, for instance, quality apprenticeship training programs that help the government and mining companies mobilize skilled Tanzanian workers and bolster hiring for citizens.

Seizing opportunities in the global mining industry

The global mining market is forecast to witness excellent growth—reaching US $1,783 billion by 2017—with a CAGR of 7.4 percent from 2012 to 2017, according to the report “Global Mining Market 2012-2017: Trend, Profit, and Forecast Analysis” by global management consulting and market research firm Lucintel.

Additionally, P.A.J Lusty and A.G. Gunn of the British Geological Survey argue in their article “Challenges to Global Mineral Resource Security and Options for Future Supply” that as the world population expands over the next century and living standards rise across the world, demand for minerals is anticipated to continue growing. 

The question, then, is how much of that demand is Tanzania prepared to meet?

The demand surge would emanate mainly from the U.K, U.S.A, Canada, Japan, China, India, Brazil and the Emirates. With such demand, opportunities abound for transforming Tanzania’s mining sector towards a more development-oriented regime—as long as the government, in consultation with mining companies and other stakeholders, redresses the challenges facing the sector.

Integrating artisanal and small-scale mining into the formal economy

Artisanal and small-scale mining (ASM) in Tanzania represents a vital livelihood and income source for the local population. It has the potential to contribute a lot more to the country’s development by providing jobs and slowing rural-urban migration.

Not surprisingly, the World Bank approved in 2015 a $45m credit to help Tanzania develop its mining sector, particularly ASM.

There’s still, however, a need for integrating informal ASM activities into the formal economic system through improving access to financial, technical and marketing support for artisanal small-scale miners.

Key to this integration is increased cooperation between small- and large-scale miners. The cooperation could be achieved with the help of clear legal provisions on how sub-division of large mining companies’ concessions could create legal possibilities for sharing land areas with artisanal small-scale miners. 

Minimizing the detrimental impacts of mining operations  

Mining can become more environmentally and socially sustainable in Tanzania, through better laws and regulations and greater attention to efforts on enforcing the Environment Management Act, 2004 and on meeting global standards, such as the Equator Principles that provide a mechanism by which banks can manage environmental and social issues in project financing.

The upshot of this development is that it is becoming more challenging for private-sector companies in Tanzania to obtain equity and loan financing for mining projects unless they comply with global standards of good practice, including those issued by the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD)—both of which lend to mining projects in developing countries.

Apart from that, the Tanzanian government and private-sector companies could seek high-level guidance from the Natural Resource Charter (NRC) and the African Mining Vision (AMV) so as to capitalize on the opportunities created by the country’s vast mineral wealth.

The guidance could help to enhance the capacity and effectiveness of the state institutions, including Local Government Authorities, in improving the way they interact with Tanzanians and mining investors.  

Developing clear legislation on Corporate Social Responsibility

Corporate social responsibility (CSR) as stipulated in the Mining Policy of 2009 is fragmented and lacks focus on how the social responsibilities of mining companies are to be ensured. 

The government in consultation with stakeholders could initiate the process to develop and implement clear legislation for CSR in order to guide mining companies’ responsibilities and ensure CSR initiatives complement Tanzania’s development plans, beyond contributing to mining companies’ growth.

It should be noted, however, that matters like repeated changes in legislation; falling mineral commodities prices; and illegal ASM activities may prevent mining companies from implementing CSR initiatives.

Fostering cooperation through good governance

Attention could be paid to recognizing and harnessing the positive potential of the Tanzanian state institutions while promoting democratic norms, in order to encourage cooperative thinking and attitude for the mining sector.

Tanzania has made progress in furthering public involvement in law-making and in increasing the space for community and civil society organizations to work in, although there’s much more that the government could do.

Besides enhancing its capacity to ensure effective coherence and coordination of mining policies, the government of Tanzania could form an independent mining authority mandated to develop and oversee the mining sector.

Renegotiating agreements to achieve a win-win situation

According to a 2006 annual survey on mining companies conducted by the Fraser Institute, countries possessing proven and high-value minerals may have a better opportunity of obtaining bigger revenue share and still maintain foreign investors even if they would be investing under less favourable terms.

It is, thus, debatable whether the Tanzania can fruitfully renegotiate existing concession agreements it entered into with mining companies in order to address the hot issues without cutting FDI.

Moreover, going forward Tanzania could review and ensure that the agreements it entered into with the World Bank and the WTO enhance—rather than undermine—the country’s policy space and leadership for changing the existing policy, legal and institutional framework for mining in order to bring new improvements and integrate mineral resources development into the economy. Such agreements—as well as negotiations over the Economic Partnership Agreement (EPA)—should not limit this space.

That is very important because Tanzania needs to build capacity to renegotiate effectively agreements that provide a win-win situation with benefits for the country’s development, for mining companies, for the local communities, and for the environment.

Conclusion

The exportation of mineral sand concentrates for smelting out of Tanzania is the outcome of a particular phase of the country’s history, but it should not be seen as an inescapable part of its destiny.

Auspiciously, the Tanzania Development Vision 2025 and the Sustainable Industrial Development Policy for Tanzania 2020 point to deepening private sector-led industrial growth as a way of transforming the economy from its heavy reliance on agriculture.

The time is now for Tanzania to face up to the challenge of building a domestic mineral smelting industry, because the country’s economy and security could well depend on looking beyond the domain of colonial history and acting immediately to commission a fresh study to evaluate the prospects of establishing such an industry. More specifically, the study could investigate the potential of Tanzania’s discovered and unexploited mineral deposits to offer greater possibilities for smelting concentrates locally.

Paul Kibuuka is managing partner of Isidora & Company Advocates, where he advises on policy, legal and regulatory aspects of natural resource projects in Tanzania. Email: paul.kibuuka@isidoralaw.co.tz Twitter @isidoralaw

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