Perspectives

Tanzania’s Fight To Hold Mining Companies Accountable

By Jehron Muhammad -Contributing Writer- | Last updated: Sep 21, 2017 - 12:56:01 PM

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The East African country of Tanzania recently confiscated diamonds worth roughly $30 million, from the British company Petra Diamonds, after accusing the company, while trying to export, of intentionally low valuing the gems. Finance Minister Phillip Mango said the mine had been “nationalized.”

According to documents from the Williamson Diamond Mine, they estimated the value of the shipment at $14.7 million (before cutting and polishing), while the government after confiscation, said the worth was nearly $30 million.

africa-watch_diamonds_09-26-2017.jpg
A fistful of diamonds held by Dina Muhimba as she sorts gemstones at the Namibia Diamond Trading Company in Windhoek, Namibia, in this photo dated June 14. Muhimba and her colleagues evaluate the precious stones, studying the cut, color and clarity of diamonds mined in one of the southern Africa nation’s biggest industries. Minerals and precious stones are a valuable resource in Africa. In Tanzania, the president has been cracking down on mining companies accused of corruption. Photo: AP/Wide World Photos

In a similar investigation, this time involving Acacia Mining, a subsidiary of Barrick Gold, the world’s largest gold mining company, a second government committee chaired by Professor Nehemiah Osoro, from the University of Dar es Salaam, discovered it had been selling the mineral concentrates (raw material) to third parties before being exported out of the country.

This was contrary to their reports that the concentrates were being exported for smelting. The report also said Acacia was guilty of “under-declared revenues and tax payments” between the years 1998- 2017 to the tune of “tens of billions of dollars,” reported The Citizen.

Several recent reports suggest much optimism by Africans and much trepidation by multinational corporations, in response to recent developments in Tanzania. According to the report, “Honest Accounts 2017: How the world profits from Africa’s wealth,” a key problem historically is that “Western countries, are extracting (mineral wealth) far more than they send back. Meanwhile, they are pushing economic models that fuel poverty and inequality, often in alliance with African elites.”

One so-called elite, Tanzania’s mining minister, Sospeter Muhongo was fired after results of an audit of containers carrying ore (raw material), came back showing exports had been understated.

Tanzania’s no-nonsense president, John Magufuli, who launched the probe in the spring discovered the value of minerals within concentrates (raw materials) was in some cases 10 times more than had been declared by the gold mining company, Acacia.

When elected in 2015 President Magufuli was quick to live up to his nickname as “the bulldozer” by purging corruption and inefficiency.

One of the first things the former teacher did as president was fire thousands of officials deemed corrupt or under-performing. “Salaries that had been paid to 13,369 ghost workers were halted and those involved punished. Contracts the president felt had been awarded improperly were cancelled,” reported the Financial Times.

A major concern in Africa, according to Earl X Reddox, a financial advisor and real estate broker, originally from California, who has lived in Tanzania said, “Unfortunately, like a lot of sub- Saharan African countries they (Tanzania) export raw materials but they don’t add value to those raw materials.”

During a phone interview from his home in Atlanta, Reddox, who, along with his investors, started out purchasing small scale mining concessions and is now operating a gold mine in the East African country suggested that Tanzania add value to raw materials by processing those materials into finished products like gold, or gold dore’ bars. These are semi-pure alloys of gold and silver usually created at the site of a mine. They are then transported to a refinery for further purification.

Concerning President Magufuli, Reddox said, “I love his spirit. He seems to resonate well with the people.” Reddox, who travels to Tanzania at least four times yearly compares Mr. Magufuli to former President Julius Nyerere, the father of modern day Tanzania. After being elected president in 1962, the Nyerere-led government experimented on a Ujamma-based egalitarian socialist society based on cooperative agriculture or economics. The model was designed to keep Tanzania from becoming dependent on foreign aid and foreign investment, and in 1971 he introduced state ownership for banks, nationalized plantations and property. But because the country’s small export base (especially coffee and sisal) eventually disappeared Tanzania’s economy dried up and to survive it became one of the largest recipients of foreign aid.

Mr. Pennix said that Pres. Magufuli, a long time educator with a PhD in chemistry from the University of Dar es Salaam, "wants to gain back control of the country’s natural resources.” In addition, Mr. Magufuli was recently celebrated in the pages of Z!Koko in a tribute to his administration titled: “8 Reasons Why Tanzania’s John Magufuli Is Africa’s Most beloved President!.” In addition to cracking down on corruption, accolades included making education free for children whose parents are unable to afford to pay. In addition, to boosting government coffers, he declared anyone found procuring public goods or services at inflated prices would face prosecution and he instituted a policy that only allows certain government officials to travel abroad.

The Acacia case has “exacerbated investors’ unease,” reported the Financial Times. But the president has shown little willingness to back down.

“If they (Acacia) accept that they stole from us and seek forgiveness in front of God and the angels and all Tanzanians and enter into negotiations, we are ready to do business,” Mr. Magufuli said in June.

The president’s critics accuse him of “becoming increasingly authoritarian.” His largest test appears to be the multibillion-dollar tax dispute with London-listed Acacia Mining.

“We’re at a critical juncture,” says Ahmed Salim, an analyst with Teneo Intelligence. “How the Acacia resolution is reached will go a long way in determining Tanzania’s fate for the next few years.”

Other critics accuse him of overstating the amount of raw minerals, from 1998-2017 that Acacia extracted out of Tanzania, without accusing the mining company of doing anything wrong.

According to the FT, “Industry analysts say that if the commissions’ estimates are accurate, Tanzania would not only be one of the world’s biggest gold and copper producers, but Acacia would have mined more of metals such as iridium than the global annual supply.”

Analysts are suggesting the absurdity of the Tanzanian government sponsored commission’s findings.

His detractors also say his aggressive approach to rooting out corruption and wastage, which initially won him widespread praise has caused his approval rating to drop to 71 percent from a high 96 percent. This drop doesn’t take away from the fact that over two-thirds of the Tanzanian public support his policies.

Some analyst suggest Mr. Magufuli’s ultimate aim is to nationalize Tanzania’s mining industry. His decision, reported quartz.com, is “to scrap development agreements between the government and mining companies and to prohibit international arbitration sent a clear message: companies didn’t have a choice.”

Though Mr. Magufuli’s approach might suggest domestic politics, it could also go a long way at dissuading the mining companies from a course of resistance.

A financial services sector executive accused Mr. Magufuli of “clean(ing) things up but at what cost?” The responses, and increasing level of criticism, to Mr. Magufuli’s efforts to clean up corruption and holding mining companies accountable for the billions of dollars in mineral wealth that multinational companies have historically taken out of Africa would be laughable, if it wasn’t so serious.

According to the report, “How the world profits from Africa’s wealth,” when multinational companies export commodities such as minerals from African countries, their governments often benefit only marginally, receiving very little tax revenue from those companies.

“The report goes on to say, “Money is leaving Africa because Africa’s wealth of natural resources is simply owned and exploited by foreign, private corporations. In only a minority of foreign investments do African governments have a shareholding; even if they do this tends to be small.”

President Magufuli is changing that dynamic. Hopefully Tanzania will become the template for Africa.

Jehron Muhammad is a Final Call contributing writer. Follow him on Twitter @ JehronMuhammad.

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