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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.

Comments

Submitted by Edward Naiman on
It amazing the country being the third largest producer of Gold in Africa its people do not feels the benefits of this blessing. For the past ten years these company have been contributing directly its income to the central Government.The Government work accordingly to its priorities.This is more likely the income generated from Mara region would be located to other region eg DSM leaving the host region underdeveloped.This is not right,lets the mining residents feel the presence of these resources. Bad enough,Money are flowing to the central Government and unfaithful Leaders taken that money to overseas account like Swiss and other place for their benefits.Lets now government turn the page and enter into an agreement with these companies to invest in infrastructure of which people would feel the presence of these resources. Lets them construct schools,Roads,Hospitals,Water facilities ,Markets and others important infra for the economy of Tz. This would make people feel and memorize the presence of the minerals in TZ.

Submitted by Anonymous on
Have the mines finished recovering their capex? To pay taxes you need to make a profit. On the road and power stations which were built because you had the mines, whose responsibility is it that they help reduce the cost of goods? The mines? The state? The retailers? What has the government and its partners like the WB done to strengthen the tax authorities so they can cut loopholes? Tanzania is repeating the same mistake in gas as it did with mining. No descent training centers for the jobs to be created and the SMEs aren't competitive. Is that the miners fault or ours?

Submitted by Mwakikoti on
The Tanzanian mining sector, like tourism and other related economic sectors would be more visible to Tanzanian economy if the whole process was transparent to Tanzanians. The process of taxation, and where the revenue goes to benefit the citizens of Tanzania, is at best oblivious. Few top individuals know the reality of the transactions. Similarly, is the case of the profits against the investment that translates into the sector's contribution to the economy ofTanzania. The question is not so much as to whether the mining companies should pay more or less in taxes; the fundamental question is the accountability of the taxes thus paid, the contribution of the mining companies in the local communities and the management of the revenue to the government. Mining companies (and arguably, some do) should feel it their responsibility to make good in the locale they operate; by sponsoring or building roads, schools, clinics, and other related community activities. Wherever a company operates, it should make that place as "their home" and provide what the community lacks; things that the people who work in that company (mining), need. They should work with local government to ascertain that their contribution is used to benefit the community (this is apart from whatever taxes they pay). Is is simply being a community contributor and a good neighbor. When it comes to environment, the government shouldn't cave corners to in favor of any given company for the detrimental of the environment. The laws that govern the environment should be applied to all. At times, these laws maybe broken in favor of some companies because some incompetent leaders accept bribes and turn their eyes away from what the company does that may ill effect the environment. This practice will be reduced or eradicated by having strict rules and monitoring of corruption with zero tolerant. If a mining company does not follow the stipulations, they should be asked to leave. It is not necessary that the Government should focus on maximizing the development of joint infrastructure rather than collecting more revenues. Frankly, the government could do both without compromising on the principles of good business and good governance. Again, the major issue here is how true to the principles, the government and the related parties. In the end, the important thing is the eradication of the corruption in the system, from top to bottom, compounded with strategic business management that would translate into economic development in the country. That should be the ethical focus of Tanzania as a nation.

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