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Tanzania Mining Industry: Revenues, Resentment and Overregulation? |
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Tuesday, 21 July 2009 |
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Page 6 of 6
Perspectives: What Are the Chances for New Investment?
When asked what kind of reform might be reached that could both satisfy the public and encourage investors, AGA’s public affairs manager Alan Fine replied: “We believe the answer to dealing with negative public opinion lies primarily in good and responsible governance by both mining companies and government at national and local level, including transparent information disclosure about mining, the way companies are managing their socio-economic and environmental challenges, and the fiscal and developmental benefits of mining.” Which all sounds about right.
Emmanuel Jengo, executive secretary of TCME, provides a similar list of conditions for reforms that would sit well with the public and investors, concluding that overall, they “must be fair and equitable, stable and predictable, non-distortionary and internationally competitive; in effect balancing the country’s interests with those of the investor.” Other countries have managed to pull this off.
Unfortunately, the public debate in Tanzania remains focused on taxation, and the government is happily avoiding discussion of broader issues that would draw attention to its own governance failures. The Ministry of Energy and Minerals has also been overwhelmed by the rapid growth of the sector. Even with the right political will, it will take time for pragmatic legislation to catch up. One great proposal by the Bomani Committee was to improve electricity supply to the mining operations and surrounding communities through links to the country’s burgeoning natural gas sector. But to do so, the committee recommends an entire national strategy for the energy sub-sector be designed, essentially from scratch. One good sign is that the 2009/10 budget read in June 2009 includes specific provisions for local government expenditure, which should help to ensure central government revenue, including mining industry contributions, makes its way down into local-level service provision.
Ultimately, the global crisis has revised the assumption that the search for mineral wealth is insatiable. Mining operations around the world have been cutting back or closing down as capital dries up. AGA is still planning USD17m in capital spending for 2009, but Fine says: “The company’s overall investment plans are of course constrained by the difficulties of raising funds in these times, though a number of corporate activities have helped remedy this situation. These include a USD1.7bn rights offer, signing of a USD1bn syndicated term loan facility, and sale of our Tau Tona mine and of our one-third share of Boddington mine. These constraints will presumably continue to exist for as long as the international financial recovery takes.” AGA is not planning to open any new mines in Tanzania.
Investors everywhere are recalculating risk and thinking twice about where to place their own limited resources. As long as this climate continues, Tanzania’s hostile business environment will deter investment. Jengo says the aggressive changes proposed to Tanzania’s fiscal mining regime will do the same: “When such regressive measures prevail, investor confidence for both existing and potential investors is to a large extent eroded. The fact that the proposed reforms are to be promulgated amidst the current global economic meltdown certainly exacerbates the situation, notwithstanding the predicted temporary nature of the meltdown. Any future investment will depend on the outcome of the proposed changes. If all recommendations of the Bomani report are taken on board, the country will certainly lose its competitiveness and investors will be looking elsewhere where the reward is worth the risk. There are several advanced projects in the pipeline such as the Kabanga nickel, Uranium, platinum and gold that stand to suffer in a stringent tax regime.”
It is unlikely that all of Bomani’s recommendations will pass, but some of them, including tax increases, probably will. Even in this case, gold companies might not stay away forever. The global crisis has been good for gold prices, as investors flock toward anything that appears more stable than banks. Demand for gold went up 38% year on year in the first quarter of 2009. Aram Shishmanian, CEO of the World Gold Council, commented in May: “There has been a seismic shift away from capital appreciation towards wealth preservation and we believe this trend will define investment behaviour in the next decade.” Major uranium discoveries made in Tanzania in late 2007 will also keep the global mining industry’s eye trained on the country.
If reasonable reforms pass, the mining sector will be vital to the long-term growth of Tanzania’s economy. Even though the ratio of dollars invested by mining companies to jobs created is dismally low, Tanzania is not yet able to absorb very many other kinds of FDI. If the government can focus on better governance, infrastructure improvement and creating economic linkages, the mining industry can help prepare the country for more foreign investment down the line. But for this to happen, nothing less than a sea change in Tanzanian attitudes toward the outside world is required.
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