Review of Governance and Development of Mining Sector of Tanzania

Transcription

1 20 TH ANNUAL RESEARCH WORKSHOP Review of Governance and Development of Mining Sector of Tanzania By Professor Godius Kahyarara 1 Ledger Plaza Bahari Beach Hotel Dar es Salaam, Tanzania March 25-26, 2015

2 INTRODUCTION This paper provides a critical assessment of dynamics of governance and development of mineral resources of Tanzania. The analysis provides for both historical and comparative assessment of sector development along with Governance systems. The time horizon for the study analysis has three key periods; i) Pre 1967, ii) From 1967 till 1990s and iii) From 1990s to date.

3 Rationale of the Study Empirical literature in this area indicates a number of interested groups that require information on development of Mining and governance systems i. The government has interest to see sustainable investment and exports coupled with fiscal and environmental compliances. ii. iii. iv. Mining companies are keen to ensure economic and financial viable investment; Communities expect jobs and spillover support from mining development within their areas; Artisanal small miners have interest to see continued participation in the sector and where possible to expand production via transformation.

4 More on Rationales In addition the paper stand on that good governance in the mining processes could maintain stability and alleviate the dangers to mine workers and communities surrounding the mines. Good governance in the mining sector could see this gift of nature turned into a veritable productive sector instead of a curse as has occurred in many developing countries. Some of the important pillars of governance include fiscal regime, policy and legislation altogether.

5 Approach and Methodology Given the nature of the problem being investigated a broad range of methods was used. First a desk review was carried out to provide a preliminary indication of the outputs and outcomes. In particular this reviewed the impact of the outputs largely based on the knowledge of experts and other stakeholder s reports. A literature search was undertaken to assess the extent to which mineral resource governance systems. Field Visits to Mwanza, Nzega and Arusha.

6 Governance Literature on natural resource governance in Tanzania provides considerable evidences of inadequate natural resources governance in various forms. Although Tanzania has since 1980s embarked on comprehensive social and economic reforms that among others focused on improvement of laws and policies of natural resource management, there are still evidences of inadequacies of such policies and planning

7 Reflection on Governance Gaps Inadequate capacity to administer and monitor natural resources. The policies and laws governing natural resources utilization are yet to attain sustainable mechanism of resources utilization and management. Lack of coordination and balancing between revenue collection and environmental tax hence evasion is massive Inadequate enforcement of corporate governance and responsibility for beneficiaries of licenses in exploitation of natural resources, especially extractive activities.

8 Reflection on Governance Gaps-2 Low local participation and collaboration with Government in ensuring that natural resources policies and regulations are put in place. Weak support for the private sector to ensure that their exploitation of natural resources abide to the laws and policies of governing natural resources. The laws and policies though encourage community based natural resource management arrangements, fails to provide a watertight mechanism to institute that.

9 Trends in Economic Contribution of Mining The review undertaken to assess the mining sector of Tanzania shows that just like in many countries, the mining sector is viewed as a key engine of economic growth and development. From the early 2000, the mining sector has become an instrumental part of the Tanzanian economy and, given the quantity of natural resources still to be exploited, will continue to be so for a considerable period of time.

10 Trends in Mining Sector Development This sector has been important since 1894 during the Germany colonial era when the discovered Gold in the lake zone. The sector remained small even after 1976 when Arusha declaration was proclaimed. Following introduction of comprehensive economic reforms of 1990s, measures taken included the following: Formulation of the Mineral Policy of Enactment of the Mining Act of 1998 which repealed and replaced the Mining Act of Establishment of fiscal incentives aimed attracting both local and foreign investors.

11 The Current Status Since 2000, Tanzania s mining industry has experienced a boom in mineral exploration and mining activities. After the reforms, large scale production of gold is mostly by major seven mines. i) The Bulyanhulu Gold Mine Ltd which begun production in The North Mara Gold Ltd is another gold mine. It started its production in 2002 under the ownership of Afrika Mashariki Gold Mines Ltd. ii) Other major gold mines include Tulawaka Gold mine, Geita Gold mine, Golden Pride Gold Mine, Buhemba Gold Mine and Buzwagi Gold Mine.

12 Outcome of Reforms in Mining Sector The paper confirm the already documented trend that multinational investors have been attracted and production of Gold has increased considerably from about 5 tons annually in 1990s to between tons in recent years. The paper makes further analysis of the outcomes in terms of revenue, employment, export and other livelihood impacts.

13 Employment Effect of Mining Sector The estimates of employment growth and absorption capacity of the mining sector show that mining has the smallest number of jobs created based on formal mining operations. The results are rather a disappointment as they point to the fact that very few Tanzanians gains from increased growth or expansion of mining sector. This low absorption capacity can be due to either small size of fixed capital or the technological choice that is less labor intensive.

14 Employment Effect of Mining Table 2: Employment Growth and Absorption Capacity by Segment of Tanzania Labour Market Total Employment Employment Growth Rate Contribution to GDP Growth Impact Annual Absorptions Agriculture Mining Manufacturing Electr Water Construction Trade Transport Finance Public Source: Economic Surveys various Years

15 Revenue Effect of Mining Sector The study assessed number of revenue sources from the mining sector that are likely to accrue from the sector. The total effect of mining revenue is estimated at between 2-4 percent with a mean value of 3 percent contribution to total revenue. Low rates of taxes and inadequate local/public investment in the sector largely attributes to this situation.

16 Percentage Contribution of Mining Tax to total Revenue Table : The proportion of mining tax revenue on total tax revenue Year Total tax revenue (Bil. Tshs) mining tax revenue (Bil. TSHS) % Mining tax on total tax revenue , , , , , , , , , ,

17 Governance and Sustainability The contribution of mining sector in Tanzanian economy shall also depend to a large extent on how long the production can last along with the sustained growth in revenues collected from the sector. The field work analyzed information from Tanzania Mineral Audit that have attempted to forecast the future production of the mining sector taking into account the largest mines.

18 Life Span of Large Seven Mines of Tanzania

19 Summary on Sustainability In the table above it is evident that in the next 20 years from this year 2015, all the existing large mines will be closed after exhaustion of gold deposits. The other shocking observation is that in the next nine years from this year 2015 out of the seven major gold mines only two will be remaining. This trend threatens fiscal contribution and other economic gains from the sector in the near future.

20 Comparative Analysis The paper takes a step further in assessing performance of Tanzania mining sector and look at performance of similar sector in other countries. Given the nature of Tanzania s economy, examples are drawn from Africa especially Botswana. As far as Botswana is concerned, much has to be discussed. At independence in 1966, Botswana was so poor that it could not even meet its recurrent budget needs. Since the early 1980s, the country, a fourth diamond mine, began operations. Botswana produced a total over 30 million carats (6,000 kg) of diamonds (about 25% of worldwide production) from the three Debswana mines in 1999, and is the highest producer of diamonds by value in the world.

21 Botswana Model Apart from production there are areas like processing which are very critical. In 2012 Botswana exported $706.6 million worth of polished diamonds according to the Bank of Botswana, averaging about $59 million worth of polished diamonds monthly. The country's Central Statistics Office reported that polished diamond exports totaled $692.6 million in 2012, an average of $57.7 million per month. Botswana is not only a large diamond producer, it also hosts the De Beers global diamond sorting center. This means that production from De Beers' operations in South Africa, Namibia and Canada are imported into Botswana before being reexported as sorted goods. Botswana's total rough diamond exports in January, including these additional goods (February figures were not released yet), was $542.1 million.

22 Major Differences Between Botswana and Tanzania

23 Outcome of the Botswana Fiscal Regime As a result of such stable and strict fiscal regime Botswana is the world s leading producer of gem quality diamonds, consistently producing between 30 to some 34 million carats (Mct) between 2003 to The mining sector during 2006/07 accounted for 75% of national export earnings, 42% of GDP and 48% of Government revenues, mainly in the form of taxes, and dividends from diamonds. Besides diamonds, Botswana also produces coal, soda ash, copper-nickel matte and gold. Other occurrences have been identified, including agates, antimony, silver and chromite.

24 Fiscal Regime of Tanzania Mining Tax 2010 Corporation Income Tax 30% or 25% for companies registered under DSM Stock Exchange Depreciation Allowances 100% capital expensing on exploration and development expenditure Loss Carried Forward Indefinite Withholding Taxes on Technical 5% for resident contractors and 15% for non-resident contractors Services Withholding Taxes on Management 5% for resident and 15% for non-residents Fees Withholding Tax on Interest 10% Withholding Tax on Dividend 10% Thin capitalization rule Interest deduction limited to 70 to 30 debt-equity ratio Royalties 5% for diamonds, gemstones and uranium; 4% for gold and other metals (on gross sales value) Value Added Tax VAT relief on imports and domestic purchases for exploration and prospecting expenditures only. Relief on drilling or mining expenditure is honoured for MDAs signed before July 1, 2009 Import Duties Same Excise Duty on Fuel Exempted Fuel Levy Capped at $200,000 for companies with MDA s Stamp Duty 1.2% Source: IMF (2011), Tax Laws

25 Conclusion There is no doubt that Tanzania Mining sector has made tremendous development especially in the last decade. Despite the development, the proper collection, management and deployment of the sector s fiscal revenues that are the main factors driving development have failed. The major critics have pointed to failure to ensure policies and programs that increase the value added by the mining sector, both at the community level for individual mines and at the national level for the sector as a whole.

26 Recommendation This paper recommends the following steps to ensure effective governance and maximization of gains i. Re-think State Participation in Investment-Joint venture? N.B STAMICO, TPDC, Former TANCUT. ii. iii. Strategic Investment promotion in local capacity to process minerals-tic, SIDO, VETA have a role here. Adopt best practices from the best performing regimes such as Botswana.