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Mountains of gold: A blessing or a curse for Tanzania?

Jacques Morisset's picture

Let's think together: Every week the World Bank team in Tanzania wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a couple of questions. This post is also published in theTanzanian Newspaper The Citizen every Sunday.

Gold, gems, uranium, coal, iron, copper and nickel…Tanzania is rich in mineral resources. These 'treasures' have attracted considerable attention within the country and abroad. It is estimated that over 500,000 Tanzanians are employed in this sector, principally in traditional small scale activities.

The sector has also attracted enormous foreign direct investment. As a result, the mining sector has been one of the driving forces of the Tanzanian economy over several years as illustrated by the following statistics:

- GDP growth of the mining (and quarrying) sector has averaged 10.2 per cent per year between 2000 and 2012, making it one of the fastest growing sectors in the country.
- Mining has become the main source of foreign exchange for Tanzania, accounting for almost 50 per cent of total merchandise exports which is equivalent to over US$ 2.4 billion in 2011. This is an increase from US$ 1 billion in 2007.
- The accumulated Foreign Direct Investment in the mining sector was over US$ 500 million between 2000 and 2007.
- Today Tanzania is the third largest producer of gold in Sub-Saharan Africa.

The expansion of the mining sector has contributed to higher economic growth and increased exports and capital inflows in Tanzania over the years. Those factors are key to successful economic development although they might not be entirely sufficient as experienced elsewhere.

The mining sector is expected to further contribute to the development of the national economy by second-level effects that include: tax and non-tax payments; the development of joint infrastructure; and the emergence of linkages with local businesses.

In the past year, one of the most debated issues in Tanzania has been the amount of fiscal revenue contributed by the large mining companies. The Extractive Industry Transparence Initiative (EITI) estimates their total fiscal contribution at Sh337 billion in 2009/10, equivalent to 7 per cent of total Government revenues collected in that  year. The same report indicates that an operator like Anglo-Gold Ashanti (owning the Geita gold mine) paid in tax and non-taxes (principally royalties) only 5 per cent of its total production. In Ghana, the same company (with two gold mines there) paid the equivalent to 12 per cent of its total production in 2009 – more than twice its contribution in Tanzania.

Other issues in the discussion include  whether the roads built by these companies for their own use have contributed to local community development by, for instance, reducing transport costs and connecting communities to new markets.

Furthermore, while the large mining companies have been (net) consumers of energy this might have been at the expense of other local firms and households. And as far as  generating local employment is concerned, the large mining operations are not seen as good catalysts as they tend to be very capital-intensive and utilize technical expertise that is generally not sourced locally. The only positive effect on employment, it is argued, is usually seen during the construction phase which this is short-lived.

- Do you think that the contribution of the mining sector to the Tanzanian economy is too low?
- Should mining companies pay more in taxes even if higher rates could discourage future investment?
- To what extent do the mining companies have a corporate responsibility to contribute to local development? Why, and if yes, how?
- How should the impact of mining companies on the environment be dealt with?
- Should the Government focus on maximizing the development of joint infrastructure rather than collecting more revenues?

Source: Ministry of Mines and Energy ( http://www.mem.go.tz/mineral-sector-overview), Ministry of Finance, Bank of Tanzania, and EITI reports.