Tanzania Mining Industry: Revenues, Resentment and Overregulation?

Tuesday, 21 July 2009

Page 1 of 6 Tanzania’s young mining industry has grown at an astounding rate since liberal mining legislation was introduced in the late 1990s to attract investment. But against the background of tense relations between mining companies and locals, Tanzania’s parliament is considering removing many of the tax breaks. This, mining companies argue, will make Tanzania’s business environment even less attractive and strangle the mining sector before it has fully developed. By Rachel Keeler. The experts all agree: Tanzania’s young mining industry is at a watershed moment. Dominated by gold and invigorated by recently discovered uranium, the sector has grown at an astounding rate since liberal mining legislation was introduced in the late 1990s to attract investment. But as it so often goes with resource-rich African countries, relations between locals and foreign mining companies have grown untenably tense. Accusations of exploitation abound, and parliament is now reviewing new mining legislation that could rescind many of the tax breaks enjoyed by mining companies in an effort to increase the industry’s contribution to society. This could not have come at a worse time. Tanzania’s mining industry has just reached a critical stage where mining companies are about to turn their first profits, and more investment is needed to keep output flowing. With little capital to spare thanks to the global crisis, and uncertainty looming around the proposed reforms, no companies have announced plans for major new investments in the country. This situation is unlikely to improve in the short term, as Tanzania’s government currently lacks the ability to stabilize the industry. Mining Sector Brief Tanzania has roughly 45m ounces of gold scattered about beneath its surface. No one is quite sure how much of that is retrievable, but it is enough to make the country the third largest gold producer in Africa, after South Africa and Ghana, and the second largest non-oil recipient of foreign direct investment (USD2.5b from mining over the last decade) on the continent. Even so, Tanzania’s gold mining industry is relatively small on a global scale. Brent Barber, principal geologist and managing director of SRK Consulting in Tanzania, says: “The belief that Tanzania is overflowing with mineral wealth is false – it has good exploration potential but it is not as richly endowed as generally envisaged.” Six large gold mines are responsible for much of the country’s production. Barrick Gold, the world’s largest gold miner, runs Tanzania’s largest mine, Bulyanhulu, with 12m ounces in gold reserves. Barrick also own Buzwagi (3.3m ounces) and North Mara (3m ounces), and maintain a 70% stake in Tulawaka (80,000 ounces). Anglo Gold Ashanti (AGA) operate Geita (5.1m ounces), and Resolute Mining Ltd own Golden Pride (2.5m ounces). These companies have yet to pay corporate income taxes because of capital allowances and other tax exemptions under current legislation. But overall contributions for mining already make up about 4% of government tax revenue (around USD100m a year), and production accounts for 3.5% of GDP. A litany of problems plague the sector: Secrecy surrounding mining contracts, none of which have been made public or available to parliament, has bred widespread mistrust. Social unrest is on the rise. Longstanding environmental and security problems around Barrick’s North Mara mine exploded this month following the death of 20 locals and nearly 300 cattle allegedly due to water pollution from the mine. Mining security officers are accused of illegal mining and indiscriminately shooting locals. Communities surrounding the mines have seen little improvement in their daily lives and artisanal miners have been displaced. The mining companies complain that the cost of doing business in Tanzania is appallingly high and getting worse. Barber says: "Tanzania is a beautiful but difficult country to work in. There is little you can get done speedily. On the mining side it's presently taking over two years to get a prospecting license granted… Tanzania is the only country that I know of where you can make a top level, 'Class A' investment but have no automatic right of prolonged residency." The government has not provided the infrastructure necessary to support mining activities, nor has it used mining revenues to provide social services, linking back to the problem of social unrest. The present situation is bad. << Start < Prev 1 2 3 4 5 6 Next > End >>