Tanzania is sitting on top of a US$39 billion ‘pot of gold’, Khadija Sharife writes in Pambazuka News, but unless the government can capture a more just proportion of royalties and taxes from the multi-nationals with concessions to mine the commodity, the country, one of the ten poorest in the world, is likely to get poorer still.
For Tanzania, seated atop a giant, 45 million ounce pot of gold, economically valued at US$39 billion, the country, one of the ten poorest in the world – and Africa’s third largest gold producer – is bound to get poorer still if the government fails to capture a just proportion of royalties and taxes.
Though US$2.5 billion in gold has been exported during the past five years, primarily through two major multinationals, Canada’s Barrick Gold, and the South African-based Anglo-Gold Ashanti (AGA), the government has accrued just US$21–US$22 million per annum on average.
12 million of Tanzania’s 36-39 million people live on under a dollar per day. Over the past ten years, following the 1998 Mining Act – the product of a five-year World Bank-financed sectoral reform programme – Tanzania has experienced large-scale mining developments including the Geita, North Mara and Tulawaka mines. Gold production has since increased from 1-2 tonnes per annum in 1998, to 50 tonnes, valued at US$876 per ounce in 2008.
But the liquidation of Tanzania’s finite resources has yet to really benefit the country, despite the recent five-year commodity boom (2003-2008).
MULTI-NATIONAL MINES AND TAXATION
According to a recent report by Tanzanian lawyer Tundu Lissu, and British historian and former researcher at Chatham House, Mark Curtis, Barrick failed to declare payments in royalties and taxes to the government. AGA, producing 3 million ounces of gold from the Geita mine, valued at US$1.43 billion at current gold prices, paid taxes averaging US$13 million per annum, cumulatively totalled at US$96 million (2000-2006). AGA’s 2006 own country report reveals remittances including corporate tax of US$1 million paid to the government, along with royalties of US$5.6 million, import duties of US$11 million, and other indirect taxes of $US8.2 million. Since 2000, stated AGA’s Alan Fine, the company has paid US$266 million in tax.
Meanwhile, allege the authors of the report, both companies have failed to pay a cent toward corporation tax (pegged at 30 per cent), consistently declaring losses despite making heavy capital investments. In 2008, Barrick’s General Manager Greg Walker stated, ‘Barrick is not paying corporation taxes, we will only start paying corporation taxes in 2014 when we will begin realising profits.’
A leaked report of US auditing firm Alex Stewart Assayers (ASA), contracted by the Tanzanian government in 2003, revealed that four gold mining companies, including Barrick and AGA, deprived the government of US$132 million via tax avoidance, by overstating losses of US$502 million from 1999-2003.
A LACK OF ACCOUNTABILITY
Each year, developing countries lose US$385 billion in tax abuse, due to the lack of corporate country reports and automatic exchange of tax information. Ironically, the firm, which demanded an advance of US$1 million, in addition to fees set at 1.9 per cent of the market value of gold exports, applied for tax exemption. It was mired by accusations of corruption concerning the tender process and allegedly received questionable remittances from the Bank of Tanzania.
Of the report’s government-imposed secrecy, ASA’s chief executive Dr Enrique Segura stated, ‘The auditing contract was laced with conﬁdentiality clauses that virtually ban the auditors from publishing their ﬁndings.’ This may be because according to Tanzania’s own auditor general, 20 per cent of the budget is lost to corruption, nor are revenues publicly disclosed by the government, or accessible to parliament. Some officials in the Ministry of Minerals are alleged to own mineral rights, lending to a conflict of interest, while officials in the mining department allegedly demand bribes prior to issuing mining or prospecting licenses, stated the report.
At the current rate of extraction – 1.6 million ounces per annum from five major mines (Geita, Tulawaka, North Mara, Bulyanhulu and Buzwagu), Tanzania’s gold is expected to last just 28 years, a situation prompting Tanzania’s Commissioner for Mineral to declare, ‘The companies are holding a panga by the handle and we are getting the sharp end.’
In response to a recent report, A Golden Opportunity: How Tanzania is failing to benefit from gold mining, Barrick stated: ‘the 45 million ounces of gold referenced as the basis for their calculation of a US$39 billion “fortune” still reside in the ground. The 45 million ounces of gold contained in rock in the ground had utterly no value until someone invested in its discovery and delineation, nor does it have any value now if it cannot be profitably extracted – none.
‘So far, based on the evidence that is available to the investors in the Tanzanian gold industry and Tanzanian Government policy makers, it is not at all clear whether the large gold deposits in remote parts of Tanzania can be extracted, processed and marketed at a profit on a sustained basis.’
TAXATION BY COUNTRY: $210 MILLION (2006)
Argentina: $13 million
Australia: $25 million
Brazil: $38 million
Ghana: $5 million
Mali: $47 million
Namibia: $4 million
South Africa: $77 million
Tanzania: $1 million
(Anglo Gold Ashanti 2006 Annual Report)
CRYSTALISING CORPORATE ADVANTAGE
Thanks to the 1998 code, the cornerstone of the country’s mining industry, royalty rates – fixed at three per cent and determined not on production value, but instead on ‘netback value’, allowing the company to subtracts costs – can be deferred, described by an official at the Tanzania Revenue Authority classified as, ‘as good as an exemption.’
An IMF study (2001) found that most royalty rates – ranging from 2-30 per cent, are often pegged at 5-10 per cent. Countries like Botswana have largely managed to avoid the ‘resource curse’ by fixing royalties at 10 per cent, unlike Zambia’s 0.6 per cent, again – the latter negotiated by the World Bank. Were Tanzania to peg rates at 5 per cent, say the authors, revenue would increase by US$61 million over the past seven years, while a rise to 7.5 per cent and 10 per cent would have increased revenue to US$131 million, and US$300 million respectively.
The World Bank’s involvement in Tanzania extends back four decades and US$4 billion – a strategy the Bank (2000) would later admit was ‘flawed’.
In 1990, the World Bank published a Mining Sector Review for Tanzania, coinciding with the Bank’s International Development Association (IDA) reform of Tanzania’s financial sector. This reform included partial liberalisation and bank privatisation, facilitating the flow of foreign direct investment – and potential mass capital reversals and flight – by removing controls on international transactions.
Further reviews were later undertaken by the World Bank and Transborder, a UK firm that markets their services and areas of expertise as attracting and maintaining foreign investment in the petroleum sector, and mining and minerals sector.
In the case of Tanzania, Transborder reviewed the Tanzanian Companies Act as well as the country’s legal, fiscal and regulatory framework for mining, financed by a World Bank credit to Tanzania. The product was the foundation of the 1998 mineral code.
The Act allows 100 per cent ownership of minerals and mines to foreign corporations, preventing the government from entering into joint ventures; the right to employ unlimited foreign personnel; unrestricted repatriation of capital and profits; the right to carry forward and offset losses; and various tax exemptions and concessions amongst other hidden subsidies. According to the ‘tax stability’ provision, the Tanzanian government is forbidden from revising tax and royalty rates for the ‘full project life’ of the mining operation i.e. until the corporations willingly leave or the gold reserves are exhausted.
A 2002 report published by the government, entitled Poverty and Human Development Report, revealed that ‘despite growth, the share of mining in GDP is still small at 2 per cent. Economic linkages between mining and the rest of the economy, including the government budget, have been limited. The tax/royalty incentives have so far resulted in limited tax revenues, though clearly, increased export earnings have been generated…’
The report also found, ‘Foreign mining companies in Tanzania are given up to 5-year tax holiday at the beginning of production, pay to the Tanzanian government a royalty fee of only 3 percent of the value of their mineral output, and thereafter are free to take out of the country 100 percent of their profits. Most of their mining equipment is also not taxed.’
Attempts by the government in 2004 to alter the tax holidays granted to mining corporations, resulted in the full force of ‘home country’ governments lobbying against implementation.
In 2004, in a letter to the Chairman of the Mineral Sector Regulatory System Review Committee, then-Minister for Industries, Trade and Marketing Basil Mramba recounted events: ‘During preparations (for enacting the 2004 Act) several foreign diplomats based in the country formed a committee to examine the proposals…which is rather unusual. As the (then) Finance Minister I met twice with them to hear and respond to their objections on the method for taxation of mining incomes as had been proposed by an expert from Oxford University, United Kingdom. Eventually the Cabinet decided to shelve an entire portion of that Bill that related to mining.’
According to Lissu and Curtis, parliament does not have any access to the contracts signed by the government. ‘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 exception was Barrick’s leaked Buzwagi contract, referring to a mine at its namesake in the Shinyango region. The contract, negotiated by Barrick and the government, was signed in a London hotel in February 2007. It allows for the company to maintain current tax levels throughout the ‘life of the project’, placed at 25 years, with an option for Barrick to renew the same terms for a further 25 years: VAT exemption; a cap of US$200 000 in taxes per annum; the right to repatriate 100 per cent of profits; deduct 80 per cent of capital expenditure from tax payable; right of access and acquisition of water and land; and the right to pursue arbitration in London, or alternately, via the 1998 code, the World Bank’s International Centre for the Settlement of Investment Disputes, amongst other clauses. The UK is Tanzania’s largest bilateral aid donor, with aid – the centre of Tanzania’s political economy, supplying 40 per cent of the country’s budget (2007).
MINING AND DEVELOPMENT
Presently, close to 80 per cent of Africa’s resources are primary commodities; the bulk of income is derived in three ways: Tax, royalties and employment. Due to the World Bank and IMF’s structural adjustment programme (SAP), marketed as the vehicle toward ‘development’, African economies were located within the global economy as producers of raw commodities. SAP development goals were described by the World Bank as, ‘more to do with ‘global positioning’ than with management of the national ‘households’.
But as the UN’s trade body reveals, the employment impact of large-scale mining is largely negligible: ‘Large-scale mineral extraction generally offers limited employment opportunities, and hence has little impact on employment.’
A survey by the World Bank (1995) placed Tanzania’s artisanal miners at 550 000, a figure alleged to have trebled over the following decade. In 2004, a report by the British government’s Department for International Development described artisanal mining as possessing, ‘considerable potential to reduce poverty… what emerges from the study is that income from mining, particularly gold mining, is a more regular source of income than from other livelihood sources…and it has been instrumental in reducing household food shortages…’
Monthly payments for mine workers average $120 - $240 per month, similar to what artisanal miners can expect to earn. In Tanzania, 10 000 miners are employed in the gold industry by multinationals, with little in the way of collective bargaining. In 2006, AGA placed the figure of unionised workers at 3.1 per cent. Failure to capture, disclose, transparently monitor and invest revenue from liquidated finite resources has resulted in a continent consistently mired in the ‘resource curse’, with governments holding themselves accountable to corporations only, as the primary source of revenue, estimated at 60 per cent.
COUNTING THE ECOLOGICAL COSTS
Less than 17 per cent of GDP in Sub-Saharan is derived from tax, a figure that has remained stagnant during the past 14 years; grants or ‘aid’ often exceed non-grant revenues in countries like Zambia and Sierra Leone.
Yet the impact of large-scale gold mining is not limited to revenue, but additionally, the loss of scarce ecosystem services such as water and timber, the economic cost of pollution and its impact on surrounding communities and ecologies.
For every ounce of gold extracted, 79 tonnes of waste is created, leaching toxic heavy metals such mercury, arson and lead into the ecosystem. Meanwhile, sulphides released from crushed rock interact with water and air to form sulphuric acid, causing acid mine drainage (AMD). Gold is often extracted using cyanide, a deadly chemical and vital reagent, via a leaching process. In 2008, AGA’s cyanide use increased by 6 per cent to 26,803,755 kilograms, or 5kg per ounce. AGA’s use of cyanide in Tanzania totaled 2,226,000kg (2008); US$22 million was allocated to environmental rehabilitation in 2008.
AGA, a signatory to the Cyanide Code, asserts that the legacy of pollution emanating from the Geita mine is also rooted in the country’s colonial history, with 4.5 million tonnes of toxic tailings having already contaminated aquatic, wetland and other vegetations.
A 2007 study by Cornell University revealed that 40 per cent of the world’s death toll is caused by pollutants contaminating air, soil and water resources, which saw industrial – specifically gold mining – ranked as one of two lead causes.
The latter issue recently came to the fore following allegations of AMD contaminated water from Barrick’s North Mara gold mine leeching into the Tigithe River, leading the government to ban water usage near the mine in July. ‘The mining companies proclaim to have a policy of zero discharge, but this is not the reality,’ stated Lissu.
‘But I believe that things can change for the better,’ he continued. ‘There are only two ways to change the situation. The first is to allow the government to enter in joint ventures with the corporations. The second is for us, Tanzanians, to stand up and demand a seat at the table. It will not be given to us for nothing.
‘We have to earn it.’
BROUGHT TO YOU BY PAMBAZUKA NEWS
* This article first appeared in The Thinker(August 2009).
* Khadija Sharife is a journalist and a visiting scholar at the Centre for Civil Society (CCS) in South Africa.
* Please send comments to [email protected] or comment online at Pambazuka News.