Tanzania – President Magufuli versus the investors

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MichaelaMichaela Collord takes a look at the impact of President Magufuli’s populist policies in Tanzania, after a special presidential committed issued a report alleging that Acacia mining has been deliberately under reporting the amount of gold in containers being held in Dar es Salaam.

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IN A SINGLE day last week, shares in the Tanzania-focused gold miner Acacia mining plummeted, falling 30 percent.

This collapse came after a special presidential probe committee issued a report alleging that containers of mineral concentrates currently being held at the Dar es Salaam port contain ten times more gold than previously declared by Acacia. The committee report also identifies significant amounts of silver, cooper, sulphur and other “strategic minerals”.

It recommends that the Tanzania government reinforce its ban on mineral concentrate exports—first imposed last March—until the right royalties are paid to the State. It further stipulates that the government should ensure the construction of smelters to process the mineral sands and allow the identification of all minerals present in the concentrates.

Following the report’s release, President Magufuli quickly responded by extending a ban on the export of mineral concentrates. He also sacked his Minister of Energy and Minerals.

The committee’s recommendations, as well as Magufuli’s swift response, are consistent with the President’s stated commitment to a form of resource nationalism, which through increased revenue generation, is meant to help finance ambitious infrastructure projects and industrial expansion.

The report was applauded by domestic observers and politicians of all political stripes. There was strong enthusiasm for disciplining investors who have long been accused of exploiting Tanzania’s resources, either through illicit mineral smuggling or as a result of the unfair contracts and legal framework adopted under World Bank supervision in the late 1990s and early 2000s. Indeed, the latest actions taken by the Magufuli administration are testament to the distance travelled since former President Mkapa (1995-2005) asserted, “I get complaints that we are being too generous in legislating for this foreign direct investment in the mining sector, but we provide very serious security.”

There is still ample room to question, though, whether the Magufuli administration will be able to proceed with its current agenda. For one, Acacia vehemently contests the committee report’s findings regarding the amount of minerals in the containers due for export. Domestically, some politicians, including the CCM stalwart and former Attorney General Andrew Chenge, question whether plans to construct a smelter are financially viable. The opposition Chief Whip and current President of the Tanzania Law Society has also argued that, while the government is right to highlight the iniquitous nature of contracts with companies including Acacia, there needs to be a more fundamental reform of the legal and fiscal regime governing the mining sector before government can pursue the policies currently being proposed. He advised that, “[I]f we don’t abandon [unfair laws and contracts] first”, then international investors “are going to come back and we will pay big time.”

Acacia has already signalled it plans to suspend production at its two mines in Tanzania with many observers projecting a long, drawn-out legal battle in international courts. Tanzania’s Prime Minister, meanwhile, has recently sought to quell mining investors’ fears, promising “no one will be oppressed as your rights will be protected.” While this may not be a particularly reassuring statement in light of the actions already taken by government, it nevertheless suggests the Magufuli administration may be looking to tread more carefully going forward. What is more, the government is still awaiting a report from a second presidential probe committee. Whereas the first committee, the one that has already reported, was made up of geologists and scientists, the second is composed of economists and lawyers. It is tasked with assessing the financial and legal constraints faced by government and is expected to make policy recommendations accordingly.

Magufuli has shown his ambition to renegotiate Tanzania’s relations with foreign investors and, in so doing, to free the country from an exploitative relationship. For that, he is rightly applauded. But as has proved the case with many of the President’s actions to date, his latest efforts to gain the upper hand over mining investors demonstrate more brash self-assertion than strategic nous.

As some of his critics suggest, there is a need for a long game, one that involves difficult negotiations and fundamental legal reforms. Otherwise, the fire driving a resurgent resource nationalism could fizzle fast.

 

This blog first appeared on the Presidential Power website.

 

 

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