by Roger Nellist
Tanzania in the wider African context
Recent Tanzanian mining developments were included at the Africa Mining Summit convened by the Commonwealth Business Council in London on 25-26 June 2013, although the country was not represented at Ministerial level. Ministers from other leading African mining countries – notably Cameroon, Ghana, Kenya, Rwanda, South Sudan and Zambia – shared their experiences and highlighted recent policy approaches to mineral development in their countries.
Recurring themes at the summit were (a) increased acceptance of greater transparency in mining sector operations, driven in part by the Extractives Industry Transparency Initiative (of which Tanzania is a member); and (b) the emergence across the continent of various forms of “resource nationalism” – of which the most common are the need to maximise national value-add from the minerals produced and also to ensure that local communities where the mining operations take place derive specific, identifiable benefits. These themes for mining also ring true for oil and gas operations (see TA 105 on Tanzania’s offshore gas developments).
In a presentation at the summit by IntierraRMG, Tanzania was bench-marked against other African mineral-producing countries, confirming that the country is a significant minerals player, especially in gold. In recent years Tanzania has ranked 3rd in the African annual gold production league, producing significantly less than South Africa and Ghana but a little more than Mali, Burkina Faso, Guinea, Zimbabwe and others. Tanzania also ranked 3rd in 2011 and 2012 in the number of new gold prospects drilled across the continent – which will help sustain the country’s gold production levels in future years. Tanzania’s Geita mine ranks 4th in the list of Africa’s top 10 gold mines.
Tanzania produces useful quantities of other minerals too; but in terms of the total value of all minerals produced, the country ranks only 11th out of the 28 African countries listed by IntierraRMG. South Africa dominates Africa’s minerals value list, with some US$60 billion of annual mineral production revenue, which dwarfs Tanzania’s US$2 billion, as well as Zambia’s US$7 billion (in second place in the African league table). Mozambique lies in third place (with about US$5.5 billion) and Ghana is fourth with US$5 billion.
Gold (20%), coal (19%) and copper (9%) together accounted for almost half of total African mineral production revenue in 2012. Importantly, mineral prospecting and appraisal work last year enabled Tanzania to identify additional resources of each of these three key minerals, as well as other major metal and mineral resources, ensuring that the mineral sector has good potential to continue to contribute to the Tanzanian economy in the years ahead. (www.intierrarmg.com)
The Africa Mining Summit also demonstrated that the contribution of mining to economic and social development in Sub-Saharan Africa is under increased scrutiny and criticism. Minerals and petroleum are non-renewable resources, and unless the production gains are efficiently captured and invested by governments, the host countries could experience a net reduction in their national wealth.
In April 2013 the International Centre for Tax and Development (ICTD) published a paper entitled Low Government Revenue from the Mining Sector in Zambia and Tanzania: Fiscal Design, Technical Capacity or Political Will? Written by Olav Lundstøl, Gaël Raballand and Fuvya Nyirongo, it examines the impact of Tanzania’s mineral taxation regime on government (GOT) revenues over the last decade. This suggests that the GOT could have earned substantially more had it levied on an internationally competitive set of fiscal terms.
The authors illustrate the big turn-around in Tanzanian mining over the last 15 years, citing export statistics for gold, the country’s dominant mineral. The annual value of Tanzanian gold exports increased from just US$ 22 million in 1998 to US$ 2,200 million in 2011, reflecting a tenfold increase in the quantity produced and the large global price hike. However, government revenues from the mining sector have not risen correspondingly. The country’s mining tax regime during this period was basically an outcome of efforts to make the sector more attractive in the late 1990s, following decades of public ownership and stagnating levels of investment. In an attempt to address the perceived revenue imbalance, mining terms were tightened in 2004 and again in 2010 – though efforts to enhance revenue flows from existing mining operations were reportedly frustrated by fiscal stabilisation terms previously agreed with the mining companies.
The ICTD paper compared mineral revenue-sharing between investing companies and host governments in seven major mining countries worldwide, including Tanzania and Zambia, and then estimated the amount of mining revenue forgone by the government during the period 1998 – 2011 due to ‘ineffective mining revenue-sharing terms’. Noting that effective sharing of mineral benefits between companies and governments has been notoriously difficult to achieve, especially in Sub-Saharan Africa and certainly when compared with petroleum operations, the authors found that if Tanzania had performed as well as the best mining countries in the comparative benchmarking sample, the government might have collected an extra US$ 1 billion of tax revenue from large mining operations over the period 1998 – 2011. Total revenues might then have been US$ 1,831 million instead of the US$ 776 million it is understood the GOT earned. This would have been an increase of 136%, or very roughly US$ 75 million extra per year. (Zambia performed much worse, with a discrepancy of almost 300%).
The ICTD paper also examined the composition of the GOT’s mining revenues. Company data from the most recent Tanzanian Extractive Industries Transparency Initiative (TEITI) reports for 2008/9 and 2009/10 showed that six mines dominated the large-scale mining sector, all predominantly in gold. These accounted for 85-90% of the audited export of gold from Tanzania as well as the majority of the direct investment, procurement and employment in the large-scale mining sector . However, ICTD’s analysis of these TEITI reports found that profit-based corporate tax made a very modest contribution to mining revenue, despite 5-10 years of operations under the current mine owners and a global mineral super cycle since 2005/6. Gross value-based corporate taxes, together with employee-based taxes, dominate the tax revenue collected from the mining sector. As is common in other mineral producing countries, certain fiscal exemptions are part of the mining regime, though the government is now trying to minimise their use. (For full text, see http:// www.ictd.ac/sites/default/files/ICTD%20WP9.pdf)
Electricity: The US “Power Africa” Initiative
On 2 July 2013, in the presence of President Kikwete, President Obama delivered a speech at the Ubungo Symbion Power Plant in Dar es Salaam. Drawing attention to the fact that nearly 70% of Africans lack access to electricity, a major obstacle to economic and social development, Obama profiled a major new initiative – “Power Africa” – that he had announced in Cape Town a few days earlier. Power Africa promises to double access to electricity in Africa, as a first step bringing electricity to 20 million homes and businesses. It will do this by matching public and private resources with projects led by six African countries that are committed to energy reforms, including Tanzania. The US is committing $7 billion in support of this new initiative and private sector companies have already committed more than $9 billion.
Obama cited the Ubungo plant as a model for replication across the continent: ”This facility was idle. But the Tanzanian government, under President Kikwete’s leadership, committed to making reforms in the energy sector. With support from the Millennium Challenge grant, General Electric, and Symbion, they got it up and running again. More Tanzanians got electricity”.
Obama appealed for a sense of urgency in African energy reform effort. One of the things he had learned from the business roundtable during his visit was that “if we are going to electrify Africa, we’ve got to do it with more speed…. It’s hard to attract private-sector business if they feel as if their money is going to be tied up forever in uncertainty. So we want to focus on speed, but we also want to do it right. And the United States intends to be a strong partner in this process”.