By Damon Vis-Dunbar
21 November 2008
Tanzania is losing large amounts of money from foreign investment in the mining sector due to low royalty rates and generous tax exemptions, while contracts with so-called stabilization clauses have locked the government into this tax regime for up to 50 years, says a report published by a consortium of church-based groups.
Tanzania, Africa’s third largest producer of gold, but also one of the world’s poorest countries, has seen its gold mining industry swell in the last ten years thanks to the introduction of a variety of investment incentives. But Tanzania’s mineral investment laws are too liberal, robbing the country of potential revenue, argue the authors of A Golden Opportunity? How Tanzania is Failing to Benefit from Gold Mining.
In written responses to the report, two mining companies operating in Tanzania have countered that Tanzania’s investment incentives are “conventional” and “essential” if the country is to draw long-term investment to the mining sector.
The report takes aim at a host of tax incentives—allowing companies to offset a 100% of their capital expenditure, for example—that the authors argue amount to hidden subsidies. Higher royalties are also recommended. The government currently levies a 3% royalty on gold. If the rate was 5%, the same that Botswana charges, Tanzania would have netted an extra US$ 58 million over the last five years, estimate the report’s authors, Mark Curtis and Tundu Lissu.
The report also alleges that mining companies have evaded taxes, pointing to a 2003 audit commissioned by the government of Tanzania from the American firm Alex Stewart Assayers Government Business Corporation (ASA). The audit has not been made public, and the audited mining companies say that they have not seen the final report, although a copy has been leaked to the news media and was obtained by Kurtis and Lissu.
According to Kurtis and Lissu’s description of auditor’s report, four companies are alleged to have over-declared losses by US$502 million between 1999 and 2003, representing a loss in government revenue of US$132.5 million. The auditors also reportedly complained of thousands of missing documents and accused the mining companies of frustrating their investigation.
Tanzania’s government revenue from mining has been placed at between US$13 to US$36 million a year by various sources. The authors of the report say it is likely about US$ 28 million, the figure provided by the Tanzanian Chamber of Mines.
Notably, efforts to boost government revenue in the mining sector may be hampered by the contracts that Tanzania has negotiated with foreign mining companies. While these contracts are normally kept confidential, occasionally they are leaked. Such was the case with a 2007 agreement with Barrick, a Canadian company, for a new mining operation in the north of Tanzania.
According to Kurtis and Lissu, the contract commits the government to maintain current tax levels for 25 years, with an option for the company to renew for another 25 years on the same terms. Compensation is guaranteed under contract should the government change the terms in such a way that the company is put “in a worse off situation”.
Barrick, the mining company, has dismissed Kurtis and Lissu’s report as “basically an advocacy piece by a hired Tanzanian anti-mining activist which encourages the Government of Tanzania to extract much higher taxes, rents, and royalties from Tanzania’s nascent gold mining industry irrespective of its impacts on that industry, or the benefits that flow from it.”
In a three-page response sent to the Business & Human Rights Resource Centre, Barrick says that Tanzania’s nascent mining industry has required large upfront investments from foreign mining companies, suggesting that the investment incentives have been necessary to attract foreign capital.
Nor are Tanzania’s mineral investment laws out of step with the rest of the world, said Barrick, adding that Tanzania’s royalty rate is higher than those imposed in Australia, Canada, the United States, South Africa and China—the world’s largest gold producers. At a time when the mining industry is feeling the effect of lower mineral prices, “the authors proposed changes in law to make the Tanzanian investment climate vastly less attractive couldn’t possible be any insensitive to global economic reality,” wrote Barrick.
A Golden Opportunity? How Tanzania is Failing to Benefit From Gold Mining was commissioned by the Christian Council of Tanzania, the National Council of Muslims in Tanzania, the Tanzania Episcopal Conference, and financed by Norwegian Church Aid and Christian Aid.
A link to the report, as well as responses from the mining companies Barrick and Anglogold Ashanti, are available from the Business & Human Rights Resource Centre at http://www.business-humanrights.org/Links/Repository/608500