A golden opportunity - justice and respect in mining:
How Tanzania is failing to benefit from gold mining
The Christian Council of Tanzania CCT,
The National Council of Muslims in Tanzania BAKWATA, and
The Tanzania Episcopal Conference
Gold mining is the fastest growing sector of Tanzania’s economy. Minerals now account for nearly half the country’s exports and Tanzania is Africa’s third largest gold producer. Yet ordinary Tanzanians are not benefiting from this boom both because the government has implemented tax laws that are overly favourable to multinational mining companies and because of the practices of these companies. Tanzania is being plundered of its natural resources and wealth. Between 1997 and 2005, Tanzania exported gold worth more than US$2.54 billion (bn). The government has received around $28m a year in royalties and taxes on these exports, amounting to just 10 per cent over the nine year period. The 3 per cent royalty has brought the government only an average of US$17.4m a year in recent years. Raising the royalty rate to, say, 5 per cent would have increased government revenues by around US$58m over the past five years.
We calculate that Tanzania has lost at least $265.5m in recent years as a result of an excessively low royalty rate, government tax concessions that allow companies’ to avoid paying corporation tax and possibly even tax evasion by some companies if allegations are true. This is a very conservative estimate, in that it does not cover all the gold mining companies or all figures for recent years (which are not publicly available). Neither does it cover the financial costs of other tax incentives such as VAT exemption, which are extremely difficult to estimate. These extra revenues could of course provide a huge boost to tackling poverty in Tanzania. We also estimate that the prioritisation of large-scale gold mining in the country has come at the expense of small-scale artisan miners, around 400,000 of whom have been put out of work.
This report identifies three severe problems with gold mining in Tanzania, namely:
• It provides the government with very low tax revenues
• It is subject to minimal governmental and popular democratic scrutiny and is
associated with the problem of corruption
• People in the gold mining areas are barely benefiting and many are being made
Tanzania is one of the ten poorest countries in the world. Some 12m of the country’s 39m people live in poverty, surviving on average incomes of 399,873 Tanzanian Shillings (Shs) (US$307) a year. At the same time, Tanzania possesses around 45m ounces of gold, which at the current gold price means the country is sitting on a fortune of up to US$39bn, although extraction costs must of course be taken into account.
The tax system and its hidden subsidies
Tanzania’s economy has been substantially liberalised over the past 20 years under the auspices of World Bank-supported economic reforms. Investment and tax laws have been radically revised so that Tanzania now offers a raft of tax incentives for mining companies. These include low royalty rates (3 per cent on gold exports), the ability of mining companies to offset 100 per cent of their capital expenditure (on mining equipment and property) against tax in the year in which it is spent, and low taxes on imports of mining equipment. The government takes no stake in the major gold mining operations, allowing foreign companies 100 per cent ownership. These incentives amount to hidden subsidies for the large mining companies.
The gold mining industry in Tanzania is dominated by two multinational mining companies – the Canadian company, Barrick, and the South African firm AngloGold Ashanti (AGA). Company figures show that AGA has paid taxes and royalties totalling US$144m in 2000- 07 and over the same period has sold around $1.55bn worth of gold, meaning that it has paid the equivalent of around 9 per cent of its exports in remittances to the government. Barrick, meanwhile, does not state on its website how much in taxes and royalties it pays to the Tanzanian government – our calculations show that it is paying a figure equivalent to around 13 per cent of its export sales in remittances to the government. Few mining companies have paid corporation tax (levied at 30 per cent of profits) because they have consistently declared losses. Our analysis, drawing on AGA and Barrick company reports, shows that both companies are making gross profits in Tanzania.
However, the country’s generous tax concessions mean that they and other companies are able to avoid declaring a taxable income. The Public Accounts Committee (PAC) presented a report to parliament in February 2007 noting that mining companies declared losses of US$1.045bn between 1998 and 2005. It put the losses down to the capital expenditure allowance and weak documentation of records by the Ministry of Energy and Minerals.
Alleged tax evasion
A government-contracted independent audit conducted by Alex Stewart Assayers (ASA) in 2003, and leaked to the media in 2006, alleged that four gold mining companies, including Barrick and AGA, overstated their losses by US$502m between 1999-2003, indicating that the government lost revenues of US$132.5m. The audit also noted that thousands of documents were missing that would have shown whether royalties valued at US$25m were, in fact, paid.
Democracy and transparency
The government has pledged that Tanzanians should benefi t more from gold mining, but so far only modest changes to the country’s tax regime have been made. The government fears that too much reform will upset the companies, donors and international institutions, none of which is championing tax reform. There are also concerns in Tanzania, though no evidence has been produced to support them, that some government officials relating to the mining industry may be prone to corruption.
The government, pressed by the World Bank and donors, has been able to grant huge tax concessions to overseas mining companies partly because there is inadequate democratic scrutiny. Gold mining in Tanzania remains shrouded in secrecy. Parliament has never formally seen any of the contracts signed by the government with the mining companies; the recent contract for Barrick’s new Buzwagi mine has been widely viewed in Tanzania but only since it was leaked to the media.
The agreement signed in October 2007 by the government with AGA for its Geita mine remains secret. The government’s repeated refusal to make these agreements public means that elected representatives cannot influence the terms under which foreign mining companies extract the country’s most lucrative resource. The parliamentary PAC is supposed to scrutinise the government’s accounts, yet it has access to too few details on companies’ tax payments and government revenues to do this effectively. Equally, the ASA audit report has never officially been made public.
Local economic development
The multinational mining companies claim that they bring economic benefits to local communities, creating employment, importing new technologies and stimulating local economic activity. There are some local benefits, but many of the claims are mirages. Studies by the UN’s trade body, UNCTAD, show that the ‘employment effects [of large-scale mining] are negligible’ and that ‘large-scale mineral extraction generally offers limited employment opportunities, and hence has little impact on employment, at least at the macro level’. Some estimates are that mining in Tanzania has created around 10,000 jobs in the past decade. The country’s six major gold mines employ a total of 7,135 people. However, large-scale mining has made many more unemployed. Before the arrival of multinational companies, small-scale artisan miners dominated gold mining; they used simple tools and techniques, providing small incomes for a large number of people who were generally uneducated and poor. One study estimated that by the late 1990s, the sector employed between 500,000 and 1.5m people. By 2006, a report commissioned by the World Bank estimated that there were around 170,000 small-scale miners in Tanzania. Comparing these figures, large-scale mining may have made around 400,000 people unemployed.
The law allows mining companies to employ an unlimited number of foreign nationals, compared to a maximum of five in other sectors. Around 8 per cent (565 people) of those employed in the six major gold mines are non-Tanzanians. The expatriates usually occupy the management and supervisory positions and earn very large salaries in comparison to Tanzanian nationals. They are sometimes exempt from paying income tax in Tanzania.
The average pay for mineworkers in Tanzania is Shs160,000 to Shs300,000 (US$128 to US$240) a month. This is a high salary compared to other jobs, in areas where few other jobs are available. However, by contrast, Barrick’s chief executive, Greg Wilkins, received US$9.4m in 2006, including basic salary, bonus and stock options. It would take an average Tanzanian miner over 500 years to make this amount of money. The companies’ ‘community development’ spending around their mines is low in comparison to the amount of gold exported, and is unlikely to generate significant local economic impacts. AGA’s spending has been averaging around US$700,000 a year, while Barrick’s appears to be somewhere between US$3-5m across all of its mines in Tanzania.
Tanzania’s National Development Vision 2025 seeks to transform the country from a least developed country into a middle income country by 2025, and the mining sector is envisaged to account for 10 per cent of gross domestic product GDP by then, compared to 3.8 per cent in 2006. On current trends, this is simply not going to happen.
Major policy changes are needed, namely:
• Tanzania’s mining law should be amended to ensure that the national economy,
and Tanzanians, benefit much more from gold mining. No new mining contracts
should be signed until this reform has taken place.
• The large donors, such as the British government and the World Bank, must
champion this agenda. This will require pressure and monitoring from civil society
organisations in Tanzania and internationally.
• Existing mining contracts must be made public and subject to parliamentary
• All the gold mining companies and the government should be required by law to
make a full public declaration of how much they pay and receive in tax and other
remittances from gold mining.
• Tanzania should join the Extractive Industries Transparency Initiative
• Mining contracts must include specific provisions for consultation with local
communities. This will require a change in attitude by central government which
fears a loss of control over the mining contracts.
The government of Tanzania’s National Development Vision 2025 recognises the role of the industrial sector and seeks to transform the country from a least developed country into a middle income country by 2025. As part of this, the mining sector is envisaged to account for 10 per cent of GDP by then, compared to 3.8 per cent in 2006.149 On current trends, this is unlikely to happen. Hitherto, a very small circle of people in Tanzania – an elite clique consisting of government ministers, some donors and mining companies – has determined the fate of the country’s rich natural resources in a way that is entirely unaccountable.
Mining in Tanzania will quite possibly soon face a major crisis – either the country as a whole starts to benefit or else calls for the big mining companies to go will increase. Moreover, perhaps many Tanzanians may soon start questioning the benefits of democracy itself, given that the country’s elected representatives have so far done so little to improve the lot of the population from this resource. The landslide 80 per cent vote secured by the ruling party at the last election is being squandered.
The recommendations in the report of the Bomani Commission provide a golden opportunity for the government to implement the positive changes to the mining sector that it has repeatedly promised.
Major policy changes need to take place at a number of levels:
Review of mining and tax laws
Tanzania’s Mining Act, especially its fiscal terms, should be amended to ensure the national economy benefits much more from gold mining. No new mining contracts should be signed until these amendments have been put in place. A number of new tax laws must be considered, such as the introduction of windfall taxes, allowing the state, district councils and village governments to control a percentage of equity in the mines, and requiring a certain proportion of royalties to go directly to the mine areas.
Engage donor support
The large donors, such as the British government and the World Bank, must champion and not oppose an agenda of fiscal reform. This will require pressure and monitoring from civil society organisations in Tanzania and internationally. The governments of South Africa, Canada and Britain must begin to challenge the role of the gold mining companies in Tanzania in terms of their impacts on local and national development.
Develop government strategy
The government should produce a strategy document outlining how it intends to harness mining revenues to national development. Its current priority of simply attracting foreign direct investment must be reoriented towards a holistic approach that emphasises the contribution of the mining to sustainable development.150
Strengthen parliamentary scrutiny
Parliament has a key role to play in developing a strategy for mining and must play a much bigger role in scrutinising government policy. Existing mining contracts must be made public and subject to parliamentary scrutiny.
Introduce independent audit
The ASA audit report on the gold mining companies should be made public by the government, which should also outline what action it proposes to take regarding the report’s findings to determine whether there has been over declaration of losses and if so, to ensure that it cannot be allowed to happen again. A further independent audit of the gold mining companies, also to be made public, should also be undertaken, covering the years subsequent to the ASA report.
Enforce public disclosure
All the gold mining companies and the government should be mandatorily required to publicly declare full details on how much they pay and receive in tax from gold mining, consistent with the international Publish What You Pay campaign.151 The government should also join the Extractive Industries Transparency Initiative (EITI), which is intended to improve the transparency of company payments and government revenues from mining.152
Create local accountability
Mining contracts must include specific provisions for consultation with local communities. Local government and local communities in the mining areas must have more say over mining operations. This will require a change in attitude by central government which fears a loss of control and power over the mining contracts.
About the authors
Mark Curtis is an independent author, journalist, and consultant. He is a former Research Fellow at the Royal Institute of International Affairs (Chatham House) and was until recently Director of the World Development Movement. He has worked in the field of international development for 15 years, including as Head of Global Advocacy and Policy at Christian Aid and Head of Policy at ActionAid. He has written five books and numerous articles on British and US foreign policies and international development and trade issues. His most recent books are:
Unpeople: Britain’s Secret Human Rights Abuses (Vintage, London, 2004);
Web of Deceit: Britain’s Real Role in the World, (Vintage, London, 2003);
Trade for Life: Making Trade Work for Poor People (Christian Aid, London, 2001);
The Great Deception: Anglo-American Power and World Order (Pluto, London,
The Ambiguities of Power: British Foreign Policy since 1945 (Zed, London, 1995).
He is currently a Research Fellow at the University of Strathclyde and has been Visiting Research Fellow at the Institut Francais des Relations Internationales, Paris and the Deutsche Gesellschaft fuer Auswaertige Politik, Bonn. He is a graduate of Goldsmiths’ College, University of London and the London School of Economics and Political Science.
Tundu Antiphas Lissu is a lawyer and activist, campaigning on behalf of the human rights and socio-economic interests of rural communities. He lives in Dar es Salaam and is married with two boys aged five years. Since 1998 he has worked with the Lawyers’ Environmental Action Team (LEAT), a public interest advocacy group based in Dar es Salaam where he now serves as Program Manager for the Mining, Environment and Livelihoods Program. Between 1999 and 2002 he was a Research Fellow at the Washington DC-based World Resources Institute (WRI) where he researched environmental policy and the politics of natural resource management and their impacts on rural rights and livelihoods.
He is well known in Tanzania for his political activism. He was at the forefront of the struggle to protect coastal communities against industrial shrimp farming in the Rufiji Delta in 1997-98. Since 1999 he has been at the forefront of the struggle by communities affected by large-scale industrial mining in Tanzania. He has written, exposed and campaigned widely against the rights abuses of the large-scale mining sector and economic exploitation and social dislocation caused by it. He has personally defended hundreds of villagers and community leaders persecuted for their opposition to the way foreign mining companies operate.
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