Firmly rooted in the belief that foreign investors are exploiting the country's resources, Magufuli has reshaped the regulatory environment.
Earlier this week a USD15 million export shipment was seized at Dar es Salaam airport by the Tanzanian authorities. The shipment contained diamonds mined by Williamson Diamonds, a subsidiary of the UK-based Petra Diamonds Ltd. According to the authorities, the diamonds had been declared at less than 50% of their actual value, USD29.5 million.
Back in July, in a similar case, the Tanzanian authorities claimed that Acacia mining, the London-listed subsidiary of African Barrick Gold, and the largest mining company in Tanzania, had short-changed the state on a backlog of royalties and taxes. Acacia was fined a whopping USD190 billion.
Two months prior to this a third such scandal cost two senior officials their jobs. A mining audit revealed that 277 containers bound for export at Dar es Salaam port held 15.1 metric tons of mineral sands, 15 times the amount that had been declared. Accused of involvement in the scheme, Mines Minister Sospeter Muhongo was fired, as was Dominic Rwekaza, Chief Executive of Tanzania Minerals Audit Agency.
The man behind this crusade against the mining industry is Tanzanian President Magufuli.
Since coming into power in 2015, Magufuli has championed an anti-corruption approach, focussing specifically on big bucks industries, like mining, and oil and gas.
Firmly rooted in the belief that foreign investors are exploiting the country’s resources, Magufuli has reshaped the regulatory environment governing these industries, ramping up royalty rates and taxes, renegotiating years-old contracts, and removing foreign companies’ rights to international arbitration.
In March of this year, the President introduced a blanket ban on raw mineral exports, with the intention, he claimed, of furthering the country’s industrial goals. Acacia says this ban has cost them approximately USD1 billion a day in revenue since its implementation.
Last week Acacia made headlines by announcing plans to scale down in Tanzania, partially closing Bulyanhulu gold mine, its flagship Tanzanian operation. It reported negative cash flows of USD 15 million per month since the ban.
Up until now extractive industries in Tanzania have represented around 3-4% of overall GDP. The country is the fourth-largest gold miner in Africa, and the only source of the world’s Tanzanite. It has abundant mineral resources, including deposits of iron, copper, diamonds, gypsum, uranium, and—most recently discovered—helium.
However, many believe the legislative changes are too radical. Mine closures, and their ensuing multiplier effects, could be devastating for the Tanzanian economy. Globally, investor confidence in the country has plummeted.
With this threatening to dent other sectors’ growth, Magufuli’s measures could cause more harm than good for the areas he presumes to support. The irony of the situation is not lost on most Tanzanians.
Widespread opinion is that Magufuli wants to “reset” the industry, with the exodus of global mining giants leaving a wide berth for local companies to come to the fore. The problem here lies in human resource capacity and in-house expertise, considered inadequate to support a domestically driven mining sector.
It is easy to dismiss Magufuli’s actions as those of a paranoid African leader who sees it as his duty to protect his country from exploitation at the hands foreign conglomerates.
But he is not the only one pushing for legislative review on the sector. At a summit held last month in Abidjan, UNECA, the African Union, and the African Legal Support Facility (ALSF), agreed to jointly pen a model mining law for the continent. The law is aimed at reducing exploitation in the extractive industries, and optimizing dividends for African countries through appropriate legal and fiscal frameworks. The law will also stipulate a baseline for mining concessions, so that no country edges out another and undermines regional industry growth.
Magufuli also might be forgiven for thinking that the Acacias of this world, however much they complain, have their hands tied. Significant ore bodies, like those in Tanzania, are hard to come by. Most investments made in the sector are long-term; not all the foreign investors will want out.
And yet, given that Acacia in 2016 contributed roughly 1.6% of Tanzania’s GDP, Magufuli is making considerable sacrifices in order to grind his particular axe.
Acacia is expected to lose USD60-65 million through the Bulyanhulu closure. Undoubtedly, this was no easy decision for Acacia’s top management, and it just goes to show that extreme actions generate extreme reactions.
All the more reason, therefore, to join the chorus of voices calling for Magufuli to temper his approach. It is possible to regulate the sector, and reap benefits for the country, without alienating the key players.
Tanzania’s neighbors—Namibia, Botswana, and Kenya—are attracting more and more investors in extractive industries. One success story is Debswana, a fifty-fifty joint venture between South African miner De Beers and the government of Botswana that has been operating now for over forty years.
In Tanzania, however, the framing of the debate, both in the international and national media, has seemingly foreclosed any possibility of reconciliation, firmly pitting the Tanzanian government against the big miners.
As Toby Bradbury, CEO of Shanta Gold, one of Tanzania’s largest gold mining companies, told TBY: “we need to sensitize many people about the contribution of mining to Tanzania and to our general standard of living. After agriculture, mining is the second-most important industry to mankind. All the materials we need to support our life come from mines; however, this link is not well understood.”
What is more, Magufuli, “the bulldozer,” is not famous for doing his politics by halves. It is hard to envisage a friendly resolution to what has become an embittered battle, and as the saga continues, it may well be too late now to kiss and make up.