THE ECONOMIC HISTORY OF THE MINING SECTOR IN TANZANIA: AN INTERVIEW WITH HONORABLE ZITTO KABWE, MEMBER OF PARLIAMENT, TANZANIA

Amne Suedi:
I caught up with Honorable Zitto Kabwe, Member of Parliament of Kigoma Town last week. He wanted to add his perspective on the mining law changes in Tanzania, understanding where Tanzania came from (Pre – 2010), where we were (2010 – 2017) and the current reforms. A sitting Member of Parliament since 2002, Honorable Zitto Kabwe is strongly associated with the passage of the Mining Act, 2010, Cap 123. He was involved in cross-party negotiation and consultation with civil society as the law was drafted and considered. My first question to Hon. Zitto was:

When we think of the Tanzanian Mining Act, we think of three years – 1998, 2010 and 2017. Can you talk to us briefly about these 3 years in your experience as a sitting Member of Parliament and being known best for how vocal you are on the ownership of resources by the Tanzanian people?

Hon. Zitto Kabwe,MP:
Since 1998 when the mining code was enacted, Tanzania has overhauled the latter twice; in 2010 with a complete new law and in 2017 whereby two new legislations were enacted known as the Natural Wealth and Resources Contract (Review and Re-negotiations of Unconscionable Terms) Act, 2017 and the Natural Wealth and Resources (Permanent Sovereignty) Act 2017, which states that all natural resources belong to Tanzanians. In these new laws the mining Act 2010 was totally overhauled tantamount to enacting a new law. The 2017 reforms were passed unanimously with a belief that they are the best for the people, the government and to a certain extent the mining operators.

Amne Suedi:
The laws during these periods reflect the national policy and foreign policy of Tanzania, but equally highly dependent on outside countries’s foreign policy towards African countries, for example the USA’s foreign policy towards Tanzania.

Hon. Zitto Kabwe,MP:
Well, the Mining Act of 1998 was enacted under extreme pressure of the Bretton Woods institutions and under the shadow of liberalization as conditions for being a Highly Indebted Poor Country (HIPC) in order to enjoy debt reliefs. The reforms then were informed by The Africa Mining Strategy developed by the World Bank. There was minimal debate in the country and in the Parliament. As a result, the law was skewed to multinational corporations investing in the country giving away massive tax exemptions and make all deals in shrewd of secrecy.The period leading to the reform of the mining sector through the adoption of the Mining Act 2010, there were major issues that raised complaints for example the mineral sector’s little contribution to the Tanzanian government’s revenue. The sector accounted for nearly half of the country’s exports and yet ordinary Tanzanians have seen little benefit, massive tax avoidance and low level of linkages to other sectors of the economy.The reforms of 2017 were publicly accepted by the people of Tanzania and some other African countries followed suit. They were seen as a transformation led by an African leader. It was unprecedented on the continent. Hopes were raised as people started to see that the country is going to benefit from its mineral resources. Resource nationalism became the national policy.

Amne Suedi:
Barrick Gold, African Barrick Gold to the now Acacia, have served as a trigger to the reforms in Mining in Tanzania if you look at our history when it comes to mining reforms and how they came about.

Hon. Zitto Kabwe,MP:
In 2010, I had drawn large attention on the then new mining contract by the now Acacia company  at the Buzwagi area in Kahama district. The motion led to the formation of the Presidential Mining Review Committee that recommended massive reforms in the sector, led to Tanzania’s participation in Extractive Industry Transparency Initiative and eventually writing of the new mining law. Similarly in 2017, Tanzanian President John Pombe Magufuli took a year into presidency before embarking on major reforms of the highly criticized mining sector and the events leading to the reforms involved Acacia Mining. In March 2017 he ordered a stop on exportation of mineral sands arguing that inside the containers there are gold and other minerals worth billions of shillings. The truth is the time when the  order came was when Acacia Mining, the largest gold miner in the country, was negotiating a sale to a Canadian company. Had the sale been successful Tanzania would have pocketed around USD 880M as a capital gains tax, that is nearly the amount that was collected from various taxes since 1997. Despite this, the President formed a team to investigate first the content of the containers and then later revenues loss from the time that large scale mining started in the country. So you can say that all reforms were triggered mainly by one company.

Amne Suedi:
How would you describe the growth of the mining sector over the decades to date? Do you feel like the mining reforms that have occurred at intervals coincide with higher revenue collection by the government or higher growth rate of the sector?

Hon. Zitto Kabwe,MP:
When the 2010 Mining Act was enacted, the sector was the fastest growing sector in the economy at 15.2%, but its contribution to GDP was only 3.8% and together with tourism contributing 80% of the foreign exchange to the country. It is crucial to note in the outset that since Tanzania started large scale mining, gold exports are worth USD 22.5 billion (2007-2018) while government revenues worth only USD 980 million. Regardless of massive benefits in balance of trade, the public revenues is just at 4.3% of the total value of gold exports. Henceforth, the country was yet to benefit from 2010 reforms as such.By the time President Magufuli came into power, mining companies had started paying corporate taxes  (though not significantly) but no new mines were opened since 2008 apart from the fact that a number of projects were in the offing. A project like Nyanzaga, which would employ more than 3000 people in Sengerema district was postponed.  The reason for the latter being supposed poor investment climate as provided for by the Mining Act of 2010. Nevertheless, President Magufuli demanded further reforms especially on linkages and value addition. A year on benefits are not seen, gold exports are going down and mines closing.

Amne Suedi:
Would you say that the mining sector has not seen growth because of the reforms in the mining laws of Tanzania? Is there a correlation?

Hon. Zitto Kabwe,MP:
The mining sector was tipped to be a key driver of Tanzanian economy to middle income status by 2025. It was designed to contribute 10% of GDP and support other sectors through linkages. The actions taken by the President, though they address one fundamental issue of ownership, have negatively impacted the growth of the sector. Today, FDI into the mining sector is at an all time low from USD 1.5 billion a year to almost zero by the end of 2017. After the start of closure of Buzwagi mine, Bulyanhulu the second biggest mine is laying off its workers and slowing down operations. For the first time in two decades mineral exports are below USD 1 billion. However, thanks to lower prices in petroleum and low levels of imports of capital goods, foreign reserves would have been under intense pressure. The new legislations have sent a negative message to investors in other areas of the extractive industry sector. The number one risk for foreign investors is that arbitration is to be done in local courts rather than a neutral place. This is a matter of trust. If our courts become fair in rendering justice, the place of arbitration shall not be a matter of concern. It takes time to build that trust, hence a more friendly approach must be adopted to encourage mining investors to invest in Tanzania. President Magufuli’s reforms brought hope. However, results are yet to be seen.

Amne Suedi:
A lot of countries start with mining base metals like copper, iron ore and coal rather than precious metals first, like gold diamonds and gemstones. Tanzania started with the latter but this is not what really builds an economy or gives a country a large economic base to build off of.

Hon. Zitto Kabwe,MP:
Coal mining and graphite are bringing new hope to the country as we see investors are interesting in this area. Maybe, we shall start thinking of these alternatives products in narrating the success of the reforms instead of a single story of gold. With world standard largest iron ore and coal deposits in the country and increasing discoveries of graphite in various parts of the country, diversifying the sector is plausible. Cobalt mining is opening new opportunities as the world is going towards electric cars and the like. It is my hope that new laws enacted in 2017 would bring investors in non precious metals and stones.

Amne Suedi:
In conclusion, the economic history that Honorable Zitto Kabwe has given us is very useful since it gives a lot of context as to how the mining industry in Tanzania started in the first place. It seems incredible that the value of the exports in relation to the revenue collection of the government was extremely low. The mining industry is still processing the new reforms and the law needs time to be processed by all stakeholders in the industry, which is what we are observing now. The amendments in the Mining Act are trying to promote value addition and creation of supply chains within the mining industry. This is very ambitious and will take time to implement, but if done correctly, adding these industries and creating linkages would create huge opportunities for investment and also impact massively the economy in Tanzania.

 

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