Tanzania’s Mining Boom: Initiatives for Increased Transparency and Accountability in the Starting Holes - Resource Governance

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Inside a tanzanite mine, Tanzania. Photo by look west (Creative Commons)

July 8, 2010

By Bubelwa Kaiza

Over the last decade, East Africa – and especially Tanzania – has been experiencing a rapid expansion of exploration and extraction activities for minerals, oil and gas alike.

Without the wider world taking much notice, by 2008 Tanzania had become Africa’s third-largest exporter of gold; accounting for as much as 44% of the country’s value of exports.  An export drop to 50 tones in 2009 now places Tanzania at the fourth position after South Africa, Ghana and Mali.  Other export minerals that significantly contribute to the country’s foreign earnings are tanzanite (a semi-precious stone unique to the country) and diamonds. Titanium, nickel and iron ore are available in plenty but not extracted yet, mainly due to insufficient electric energy supply. Uranium estimated at 53.9 million pounds, worth US$ 2.2 billion, is the latest discovery in central and southern Tanzania that is scheduled for extraction in early 2012.

Tanzania is also witnessing an increase in oil and gas exploration activities. Currently more than twenty foreign companies are involved in petroleum exploration alone. Some of the natural gas deposits are already being exploited in the Songo-Songo gas field and used to generate electricity for local consumption.

The commodity boom in Tanzania provides for broader developmental opportunities in a hitherto mainly agricultural economy, in which more than 85% of its 40 million population lives below the poverty line.  Despite its relatively short existence, the extractive industries sector has already begun to re-shape the country’s politics and society – though not always positively.

Governance issues in Tanzanian extractive industries sector

The growth of commodity exploration and extraction in Tanzania has resulted in a range of governance challenges, provoking increasing public concern and debate.

There is a widespread perception that corruption relating to the extractive industries sector is on the increase. In fact, Tanzania’s rating in Transparency International’s Corruption Perception Index (CPI), that had shown some improvements until 2007, fell remarkably over the last couple of years to levels closer to its East African neighbours, Uganda and Kenya.  While it is important to note that the CPI does not necessarily imply corruption associated to extractive industries alone - public procurement, for instance, is regarded as an incubator of grand and political corruption in Tanzania - poor performance in terms of transparency is a well known phenomena in resource-rich countries across Africa.

A major reason for public distrust is the lack of transparency around the so called Mining Development Agreements (MDAs) that government signed with global mining companies. The MDAs are strictly confidential agreements that give mining companies preferential rights. The 1998 Mining Act, generally believed to have facilitated shoddy MDAs, gives the Minister for Energy and Minerals the power to enter into these agreements without being bound by the advice of the Mining Advisory Committee and unchecked by public scrutiny, which makes them a breeding ground for corruption. The fact that in 2007 the then minister signed a MDA that had been declared unbeneficial by the Advisory Committee outside the country fuelled further suspicion.   

Public sentiment is that the MDAs contain unnecessary tax incentives and stabilisation clauses and are silent on crucial aspects such as transfer pricing, ring fencing, windfall taxes, and time limits for tax exemptions, all of which deprive the country of its fair share from the exploitation of mineral resources. Royalties, their rate and how they are calculated, have been another controversial point in this context. Currently, MDAs provide for a mere 3% (gold) royalty based on the net instead of gross revenue of the mining companies. This means that government only receives revenue from royalties after subtracting costs on transportation and processing instead from the amount that the minerals are sold for in the market. Understandably, such negatively skewed fiscal regime remains detrimental to the erstwhile expected economic and social gains from extractive industries.

In addition, the disproportionally small contribution of the mining boom to Tanzania's economic growth of between 2.8% and 3.2% shows that the sector is not integrated into the national economy.  It points to a lack of investments into the type of infrastructure that is necessary to develop “value added” economic activities such as the local transformation of raw products before export. Therefore, a clear strategy with plans on how the extractive industries sector can promote wider industrial development is needed.

However, even the recently passed new Mining Bill, despite its attempt to address anomalies in the earlier legislation through, for example, higher royalties, MDA reviews after five years and restricting gemstone mining to local ownership, lacks this 'bigger picture'. Furthermore, the new law is not clear on compensations for communities that have been evicted from their home areas to allow mining activities to take place. Nor is there a policy or law to guide and regulate Corporate Social Responsibility (CSR) in the country.

Meanwhile, tensions between foreign mining companies and local communities are growing, with serious environmental, labour and human rights concerns being raised. The Tanzania Mineral Workers Association (TAMICO), for instance, has constantly engaged the Canadian-based mining house Barrick Gold Corporation on their alleged poor treatment of local employees.  Moreover, in 2009 at the company’s North Mara gold mine, heavy metals and toxic chemicals have reportedly leaked into the river Thigite. The incident has since become a bone of contention and source of conflict between locals and the mining business.  While humans and animals using the river have been seriously affected by its contamination, Barrick Gold has denied any wrongdoing and government remains inactive. Remarkably however, the government chemist has since not published the report on river Thigite’s water contamination levels.

It is against this background that various local and international initiatives, aiming at improved transparency and accountability in Tanzania’s extractive industries sector, have been launched in the country.

Approaches towards improving governance of natural resources

Since the late 1990s, governance issues around extractive resources have received increasing international attention. This was based on the growing recognition that, especially in countries with an overall poor governance record and weak institutions, mineral wealth frequently did not translate into development. Instead, sudden mineral export booms in many cases led to severe economic imbalances and rising corruption. In some cases, they even fuelled violence and armed conflict. These and related phenomena are collectively known as the “resource curse”. 

Various measures have been designed to address these problems. With regards to problems of corruption and misuse of revenues resulting so frequently from the extractive sector, two major international initiatives have emerged: the Publish What You Pay (PWYP) campaign and the Extractive Industries Transparency Initiative (EITI). Both initiatives aim to increase transparency and accountability, but pursue these objectives in different ways.

Launched in June 2002, PWYP is an international campaign and global civil society movement / coalition. PWYP calls for mandatory disclosure of tax, fee and royalty payments made by oil, gas and mining companies to governments for the extraction of natural resources on a country-by-country basis, as a necessary first step towards a more accountable system for the management of revenues in resource-rich developing countries, and for the reduction of poverty and corruption in these places. 

EITI, on the other hand, is a voluntary multi-stakeholder initiative involving multinational and state-owned extractive companies, host governments, home governments, business and industry associations, international financial institutions, investors and civil society groups. EITI is a complex, formalised process, involving several steps of auditing and reporting revenue flows. By April 2010, 31 countries worldwide were recognised as “candidate” or “compliant”, 20 of them in Africa.

In practice, both initiatives – while operating separately – share similar objectives and overlap to some extent, especially with regard to civil society actors who participate in national EITI processes. Tanzania, being one of the “latecomers” in the area of extractive industries, has been one of the most recent and the first East African country joining EITI.

EITI in Tanzania

Tanzania declared its commitment to join the EITI process in February 2009. The government’s decision to join EITI can be partly attributed to the recommendations of the Presidential Mining Review Committee, which among other things, recommended Tanzania to join the initiative in order to lift transparency around mining contracts to international standards. The Committee, headed by former Attorney General, Hon. Mark Bomani, was formed by President Jakaya Kikwete towards the end of 2007. After being presented to the president in June 2008, the “Bomani” report was made public through the local media.

However, EITI implementation in Tanzania is moving at a snail’s pace, and the government’s political will to implement EITI seems to be dwindling. It took almost one year for the president to appoint Hon. Mark Bomani as Chairperson of the Multi-Stakeholder Working Group (MSG), which is tasked with overseeing the EITI implementation process. The MSG’s 15 member seats are equally distributed between government, private sector and civil society representatives. Trade Unions and the PWYP coalition are among those representing civil society. Business is notably represented by Chamber of Mine and Energy (TCME) and small scale miners. Government has put forward some of the key institutions involved including the Ministry of Minerals and Energy and the Petroleum Development Corporation (TPDC).

While government had by December 2009 not allocated funds from the national budget for the implementation of the EITI process, other stakeholders have played their part. In March 2010, the MSG signed a Memorandum of Understanding (MoU) with government that defines the roles and cooperation principles between the two.  In the same month, the World Bank's Multi-Donor Trust Fund (MDTF) approved US$ 425,000 to support the EITI process in Tanzania, which is budgeted at a total amount of US$ 1,387,756. Despite the preparedness of the African Development Bank (AfDB) and other development partners to support the Tanzanian EITI process, there are significant doubts that the country will be able to publish the required validation report before the deadline of February 2011. A huge workload remains to be done while the Tanzanian EITI timeframe has reached past midpoint.

Tanzania’s attainment of EITI compliance status could ensure a reformed, transparent and stable fiscal, legal and regulatory regime governing the extractive industries sector and open up the country to genuine and credible foreign investors. It could also reinstate public confidence in extractive industries projects and provide a stable political environment that contains conflicts between large businesses and small scale miners. It would enable government to realise the erstwhile forgone 30% corporate tax, customs duties, windfall, withholding and other taxes. Consistent with increasing export earnings, balance of payments and local ownership of extractive industries projects the contribution of the extractive industries sector to the country's economic growth would be likely to rise from the current 3% to well over 10%. Overall, attaining EITI compliance status offers Tanzania the opportunity to build a strong economy which would allow government to provide quality public and social services.

PWYP in Tanzania

Following months of preparation, the Tanzanian Publish What You Pay (PWYP-T) campaign was launched on 16 April 2010, with 21 institutional and three individual founding members signing a formal commitment to declare the coalition established. As members elected the coalition’s steering committee, approved the work-plan and the coalition’s governance instruments, PWYP-T defined its core mandate as improving transparency in the country’s oil, gas, minerals, forestry (including wildlife) and fishing industry.

The steering committee was charged to form three technical working groups, which will execute training and capacity building, research and advocacy, strategy development and campaign coordination as well as monitoring and evaluation. Furthermore, the steering committee will provide the overall strategic direction and oversee the coalition’s campaigning activities. Members to the committee include the Concern for Development Initiatives in Africa (ForDIA), the Legal and Human Rights Centre (LHRC), and the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA).

The coalition’s activities such as strengthening the knowledge-base, skills and experience of PWYP-T members, conducting studies and disseminate information on oil and natural gas resource availability in Tanzania as well as assessing the impact of mining on Tanzania’s economic growth have commenced with momentum and clear focus.

As part of the focus on improving transparency in the mining sector PWYP-T plans to aggressively campaign around and engage with mining giants such as Barrick Gold, AngloGold-Ashanti, Petra Diamond and Tanzanite One, all of which have shown a lack of commitment to transparency in their operations in the country.

Taking the campaign beyond PWYP-T members to ensure public ownership of the campaign is certainly another challenge. Very few Tanzanians are aware of the issues related to the extractive industries sector; thus most citizens cannot engage in the discourse on, for example, the legal and regulatory framework. Similarly, PWYP, as it is the case with EITI, and its mission is not well known in Tanzania, across both the government and the public at large. Therefore PWYP-T will embark on an awareness campaign using brochures, newspapers, radio, television and websites to reach out to all stakeholders. Moreover, the campaign, in pursuit of PWYP-T role as an independent monitoring mechanism, will be useful to stimulate public debate around the contentious issues that are likely to hamper EITI implementation efforts. While this will be a challenging task, PWYP-T can benefit from its good access to EITI information.

PWYP-T is set to learn from the experiences of its Liberian counterpart. Liberia, despite having just emerged from civil war, achieved EITI compliant status in August 2009. This can mainly be attributed to the commitment of President Ellen Johnson-Sirleaf and her government to promote transparency in the extractive industries sector, and their unconditional cooperation with PWYP. Conscious of the role of corruption, mismanagement and distrust in fuelling the war, the country has made a special effort to turn its extractive industries into a sector that yields prosperity and political stability. Liberia is the second country to reach the prestigious EITI status after Azerbaijan. Other African countries requesting EITI validation include Nigeria, Ghana, Sierra Leone, and Cameroon, though all of them failed to meet the March 2010 validation deadline. Equatorial Guinea and Sao Tome e Principe have lost their status as candidates to become EITI countries after an EITI board meeting in April 2010. In both countries a lack of political will had been the main obstacle to progress. 

Finally, in order to conduct an effective campaign PWYP-T will have to rely on the support from its International Secretariat as well as on the online resources that are channelled through the PWYP-Africa network.     

Outlook

If successful, the combined efforts of PWYP-T, EITI, the private sector and government will, by means of establishing an appropriate policy, legal and regulatory framework in the extractive industries sector, ensure that Tanzania is achieving the vision of being a country where transparency and accountability is institutionalised and natural resources are a driver of social and economic development. The combined total impact of Tanzania’s resource sector, including the oil, gas, minerals, forestry (including wildlife) and fishing industry may change the country’s economy into a new power engine on the African continent, parallel to South Africa and Nigeria.

This will surely not happen over night and may take longer than people expect. Unfortunately, as both PWYP and EITI are both less than a decade old initiatives, no success stories that could be used as benchmarks are available yet.