Miners begin to feel the rumblings from tax-starved Tanzania

Miners begin to feel the rumblings from tax-starved Tanzania

TOM MALITI, Associated Press

30th October 2006

DAR ES SALAAM, TANZANIA -- Tanzania has risen to Africa's third-largest gold producer in less than a decade, and now this East African country's government wants to earn more from its privately controlled mining sector.

Mining companies say Tanzania achieved its status in record time because of investor-friendly policies after decades of state control and small-scale mining. Companies -- which mine gold, diamonds and other gems, nickel and other metals -- pay royalties but no corporate taxes until they have recouped their initial investment.

Critics, however, say that the mining companies pay low wages and cost thousands of jobs among small-scale miners, hurting local economies. They also say that Tanzania has seen comparatively little revenue go to the treasury even as gold prices have doubled since mining was liberalized here.

President Jakaya Kikwete has directed the Energy and Minerals Ministry to review mining policies and laws, but ministry officials and mining company representatives missed a self-imposed Sept. 30 deadline to conclude discussions.

"We are exploring what areas can be improved, what areas can be reviewed," said Deo Mwanyika, executive general manager for corporate and legal affairs at Barrick Gold Tanzania. The subsidiary of Toronto-based Barrick Gold Corp. is the largest mining concern in Tanzania, with three gold mines and two other mining projects in the works.

Mr. Mwanyika added his company, which has operated in Tanzania for seven years, expected to begin turning a profit and paying corporate taxes in three years.

Chris Maina Peter, a professor of law at the University of Dar es Salaam, said that he believes a major factor in Mr. Kikwete's decision to review mining was the president's landslide victory in December, 2005, polls.

"I think the new government was shocked by its own success in the elections . . . It feels it has that legitimate duty to do something to assist the people," said Mr. Peter, who has specialized in investment law.

"People had been saying, 'Our natural resources are being stolen in broad daylight and what are you [the government] doing about it?' "

While Mr. Kikwete's ultimate goal is not yet clear, events in Tanzania seem to fit a global pattern. Russia has tried to assert more control over its oil and gas resources, and Venezuela and Bolivia have moved to curtail oil companies.

Tanzania, which gained independence from Britain in 1961, adopted socialism six years after independence. The government began liberalizing the economy in the early 1990s, a time when the collapse of the Soviet empire was leading many African countries to rethink their economic models.

A new mining policy, amended financial laws offering a slew of tax and investment incentives and a new Mining Act that parliament passed in 1997, saw six large-scale gold mines opened in Tanzania between 1998 and today. Tanzania is now Africa's third largest gold producer -- after South Africa and Ghana.

"It was just like a boom," said Sauda Kilumanga, public relations manager for Barrick Gold Tanzania.

The companies are exempt from Tanzania's 20 per cent value-added tax on goods and products used exclusively for mining and can offset all equipment and machinery costs against their earnings.

The World Bank says that mining is one of Tanzania's fastest-growing sectors. It makes up at least half of the country's foreign exchange earnings each year. However, it makes up only 3.2 per cent of Tanzania's gross domestic product.

Nicholas Mgaya, a senior trade unionist in Tanzania, said that generally the mining companies are "fair" in their relations with workers, but complained wages were low. "As compared to other parts of the world, the work in [Tanzania] is very difficult so the salary does not reflect the value of the product. Workers in Tanzanian mines are paid on average 160,000 to 300,000 shillings ($128 to $240 U.S.) a month," said Mr. Mgaya, deputy secretary general of the Trade Union Congress of Tanzania.

He said that South African mine workers are paid on average 10 times that.