Tanzania’s mining dispute ends – but at what cost?

 

 

In the first half of 2017, just as his post-election glow was beginning to fade, Tanzanian President John Magufuli declared war on foreign mining companies. “Enough is enough … we need investors, but not this kind of exploitation.”

It was a typically canny move from the president. Not only did he shore up support from within his ruling party, but he also had a valid point. Tanzania has historically been a sweet deal for many foreign miners, who have benefited from low tax rates, often agreed in secret contracts, and little regulatory oversight.

Other African nations, some of whom suffer from similarly lopsided arrangements, watched closely to see how far Magufuli would force the issue — and whether he would get away with it.

Magufuli focused his ire on one particular company, Acacia Gold, which he accused of dodging tax and exporting more gold than they declared.

“They are stealing from us,” the president said, before hitting the company with a $190-billion bill for unpaid taxes and penalties.

As analysts noted at the time, this astronomical figure was worth nearly two centuries of revenue for the company. Acacia denied any wrongdoing, but its share price plummeted and it was forced to scale back its operations.

Two years on, this increasingly bitter dispute — which included the arrest of several Acacia executives — has finally been resolved. On Sunday, Canadian-based Barrick Gold, Acacia’s parent company, announced an agreement with the Tanzanian government that will allow them to restart production. Barrick has agreed to pay a $300-million fine, as well as hand the government a 16% stake in each of its three Tanzanian mines and 50% of any royalties.

“It will probably be claimed as a face-saving victory for both sides,” said Ronak Gopaldas, a director at Signal Risk. “For Barrick Gold, the resolution finally draws the curtain on a long-winded and acrimonious saga that has seen huge value erosion for the company. They will be relieved to operate in a more constructive environment moving forward and there will be a genuine sense of relief around the more conciliatory approach by the government. However, despite signs of an improved business environment, there will be a lingering scepticism, given the erratic and haphazard nature of the Magufuli administration to date.”

Magufuli’s administration will be celebrating too, said Gopaldas. “For the Tanzanian government, who have trumpeted an economic nationalism narrative to garner favour among the electorate, this will also be seen as a victory. Concessions represent a symbolic victory for the Magufuli government, along with a sizeable financial windfall.”

These celebrations may be short-lived, however, amid concerns the Magufuli’s approach will deter further investment. Tanzania has tumbled from “medium” to “extreme” risk, and is now ranked as the second-riskiest country in the world for mining companies, according to global risk consulting firm Verisk Maplecroft’s most recent Resource Nationalism Index.

“Tanzania’s trajectory is astounding,” it said.

Kenyan economist Aly-Khan Satchu, argues that, given Acacia and Barrick’s existing investment, it made sense for them to cut a deal, but new players will be scared off. “I can’t think of a mining company that will go to their board and propose a project in Tanzania now. For $300-million, Magufuli has put the entire mining sector at risk.” 

Simon Allison
Simon Allison
Africa Editor for @MailandGuardian. Also @ISSAfrica.
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