[email protected]: Did Magufuli seal the fate of foreign large-scale mining investments?

Friday October 15 2021
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Former Tanzania President John Magufuli speaks during a past event. Photo | FILE

By Damas Kanyabwoya

Dar es Salaam. When President John Magufuli paid an impromptu visit to the Dar es Salaam port in August 2016, and ordered impounding of hundreds of containers of gold and copper concentrates that were to be shipped off to Japan, many people did not immediately realize what was going on.

It was until he formed two mining committees and tasked them to determine the real chemical and commercial values of the contents of the concentrates that observers started sensing that something big was forthcoming.

The two committees concluded that Tanzania did not get its fair share of revenues from the exports of concentrates. At the end, President Magufuli’s government slapped Acacia Mining, which was exporting the concentrates, with a whopping $190 billion tax bill, and banned exports of concentrates.

Acacia executives came to Tanzania for lengthy negotiations with the government - and the rest, as the adage goes, is history.

That President Magufuli felt very strongly about the power relations between foreign large-scale mining and the government was easy to see.

But what might have escaped the attention of many is the long-drawn public outcry over little benefit from mining and lukewarm government’s response to it might have shaped Magufuli’s political perspective long before he became President.

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What was obviously clear was that President Magufuli’s interest in taking on the mining giants was not aroused by a haphazard tour of the port?

His scripted speeches during the 2015 General Election campaigns did not reveal much about what he felt on large-scale, commercial mining but a video clip that went viral around the same time shed light on his sentiments, specifically, on the shipping of gold and copper concentrates to Japan.

The video clip showed him talking with people, purportedly, to be officials from the Mining Department. In the clip he categorically makes it clear that the country does not get what it deserves from the proceeds of copper and gold concentrates.


Hot political issue

President Magufuli was not the first politician to feel so strongly about the situation of the mining regime in Tanzania. He was certainly not the first CCM President to do something to rectify the mining situation.

The mining sector had become a serious political capital in Tanzanian politics from the early 2000s. Millions of the displaced, unemployed artisanal miners found their voices articulated through the well-choreographed, anti-mining campaigns of activists and politicians. In fact many opposition politicians found their political careers in the trenches of the anti-mining campaigns.

The public outcry was slowly being felt in the ballot boxes and the CCM government started panicking. President Kikwete and the Parliament were obliged to form a number of mining commissions and committees, the most famous being the Bomani commission.

The findings of the commissions led to the formulation of the new Mineral Policy 2009 and the enactment of the Mining Act 2010 which, among other things, sought to facilitate the government’s participation in mining projects.

However the changes brought about by the Mining Act 2010 were too cosmetic to quell the outcry because the law had no powers to affect the Mineral Development Agreements (MDAs) that had already been signed before its enactment, which were the source of public concerns, after all.

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As a populist President, Magufuli tried to capture people’s concerns and translate them into a legislative agenda that would have a lasting impact on the large-scale extraction of natural resources by foreign firms in the country. The most important laws that Magufuli initiated are the Natural Wealth and Resources (Permanent Sovereignty) Act No 5 of 2017, Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act No. 6 of 2017 and the amendments of the Mining Act.

“Under Mining Act No. 14 of 2010, as amended, and Natural Wealth and Resources (Permanent Sovereignty) Act No. 5 of 2017, the entire property and control of all minerals on the surface or below the surface, including bodies of water, are public property vested in the President in trust for the citizens of Tanzania,” say Thomas Mihayo Sipemba and Jacquiline Matiko of East African Law Chambers in their analysis of Tanzania’s mining laws.

The Natural Wealth and Resources (Permanent Sovereignty) Act states that Tanzania’s proclaimed sovereignty cannot be questioned by any foreign court or tribunal, according to Sipemba and Matiko.

On the other hand the Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act No. 6 of 2017 provides for the powers of the National Assembly to review agreements concluded by the government and for the right of the government to renegotiate the terms that it considers unacceptable in agreements that it has already signed.

Analysts say President Magufuli’s mining reforms created a political-economic situation that will influence investments inflows by foreign large-scale mining firms for many years to come.

Prof Bakari Mohammed from the Political Science and Public Administration Department of the University of Dar es Salaam says potential investors have a habit of studying the political economy of the host country to determine the predictability of laws and the security of their investments from expropriation.

“Tanzania has gone through different political phases that influenced the economic policies of the day. Mwl Julius Nyerere’s socialist policies that were characterized by a centrally planned economy discouraged foreign investments in mining. Obviously this would have an impact on investors’ perception of Tanzania’s investment climate,” Prof Mohammed says.

When Ali Hassan Mwinyi became President he opened up the economy, Prof Mohammed says and adopted policies that attracted foreign investors.

This welcoming attitude towards investors continued under President Benjamin Mkapa and reached its peak during President Jakaya Kikwete’s administration, he adds.

“During President Magufuli’s period we saw a decline in investment inflows probably because the reforms he initiated stoked fears of a return to socialism era policies,” Prof Bakari added.

We might see an increase in mining investment inflows now due to encouraging policies of President Samia Hassan Suluhu that focus on re-opening of the economy and multilateralism, although, I think, the doubts over the predictability of policies might continue for a while, Prof Mohammed noted.

Prof Mohammed said Magufuli’s mining reforms gave an impression of policy unpredictability but on the other hand they were probably necessary to ensure the country and its people benefited from its own natural resources. President Magufuli was also responding to people’s concerns over little benefits from its own resources. Was Magufuli successful in getting what he wanted? Well there were some challenges. Maybe the legislative changes were a bit too excessive to scare away even good-intentioned investors.

“So there is always a need for a bit of a balance since we need investors,” Prof Mohamed noted.

Dr Audax Kweyamba from the Political Science and Public Administration Department of the University of Dar es Salaam says President Magufuli’s policies and laws were radical and overturned business as usual in the mining sector. “The reforms that President Magufuli unleashed certainly came as a deterrent to those investors who thought Tanzania was a land to plunder. And so the laws were enacted with good intentions of restoring the country’s sovereignty and increasing internal control over the natural resources,” Dr Kweyamba notes.

Politically the laws were good. Before they were enacted various committees were formed to investigate and advise the way forward.

On the other hand there were unintended consequences of a decline in investments.

“It was also on the basis of the personality of President Magufuli himself. At times he said some investors were swindlers, all that was his approach and leadership style,” Dr Kweyamba said.


Way forward...

Dr Kweyamba says there is a need to maintain some kind of nationalist approach to natural resources management that ensures current and future generations benefit from any exploitation of the resources. Of course the laws should not be too restrictive, he notes.

“We should continue creating a good investment climate for mutual benefit lest we end up again in a situation where investors seem to get all the benefits,” he clarifies.

He adds that if the government goes back to the old laws there would be no policy stability because in future demands for more beneficial policies will rise up again, Dr Kweyamba argues.

“I would advise that we continue with nationalist, patriotic policies and laws but also create a good and favourable business environment that will attract foreign investors. The truth is we still need investors,” Dr Kweyamba notes.

Prof Mohamed says Tanzania should learn from countries that benefited from the extractive industries such as Saud Arabia and Botswana, Prof Mohammed says. The same multinational companies operate in those countries but they have policies that ensure the country gets a fair share, Prof Bakari notes.

“It is obvious that we can’t blame everything on multinational companies. It’s also something to do with internal weaknesses because some of the local officials have been known to be accomplices in cheating the government of its rightful revenues. So, there is also a need for strong regulatory institutions that can easily detect cheating,” Prof Bakari argues.

Transparency is also important. When there is no transparency, it is easy to be cheated, according to Prof Mohammed.