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Tanzania: Magufuli’s high-stakes gamble

Tanzania: Magufuli’s high-stakes gamble

When Tanzania’s President John Magufuli implemented an export ban on gold and copper ore in March, many in the country applauded the leader for taking his war on corruption and waste to the mining industry.

Tanzania is Africa’s fourth biggest gold producer and the mineral accounts for $1.4bn per year in exports. “The Bulldozer” – so called because of his time as minister of works, where he drove a programme to build roads across the country – accused mining companies in the country of not paying their fair share because of favourable contracts.

The accusation was, in the minds of many in the East African nation, verified when a committee appointed by the president claimed that Acacia Mining, a subsidiary of Canadian mining company Barrick Gold, had understated its mineral exports over several years by billions of dollars.

Acacia, which was fined $190bn by Tanzanian authorities this month, has denied any wrongdoing and is both negotiating with the government and exploring legal avenues. The export ban has already affected the operations of the major foreign-owned mining companies of mining companies, including AngloGold Ashanti and Petra Diamonds, and the security of 36,200 jobs is under threat at Acacia’s three gold mines in Bulyanhulu, Buzwagi and North Mara, the company says.

Following the disagreement with the mining company, the country’s National Assembly fast-tracked two new controversial mining laws, which allow Tanzania to cancel and renegotiate contracts with mining and energy companies, force all operations to trade on the Dar es Salaam Stock Exchange (DSE) and submit to a new regulatory regime. Magufuli has even gone as far as to threaten to shut down all gold mines in the country if mining companies delay talks with his government aimed at resolving allegations of tax evasion.

By taking on the mining industry, the president hopes to develop domestic industries. However, analysts are sceptical that the moves will have the desired effect. “Investors have reacted very negatively to the new mining reforms,” says Emma Gordon, senior Africa analyst at risk management company Verisk Maplecroft. “They feel they are very anti-business and there are concerns about contract sanctity and export bans.”

Magufuli is undertaking a high-stakes gamble which could put off foreign investors, she adds. The gamble, if it goes wrong, could cost the country 3.7% of its GDP and billions of dollars in revenues. Gold, in particular, accounts for 90% of Tanzania’s minerals export.

The East African nation also exports iron ore, diamonds, gemstones, coal and uranium. Under Tanzania’s Development Vision 2025 plan, the country aims for the mining sector to account for 10% of the GDP. However, the gamble the president is taking is for the national interest, according to Donald Mmari, executive director of institution Research on Poverty Alleviation (REPOA).

“[The reforms] are a genuine and legitimate attempt at ensuring that Tanzania gets the best deal from the country’s natural resources. Every country in the world wants to maximise the amount they collect through natural resources,” he says. “In Norway, for example, oil contracts are scrutinised by the country’s parliament to make sure that they are signing the best deal. I think it’s only fair that Tanzania does the same.”

Although many other Tanzanians approve of the steps being taken by the president there are still concerns that investors will be scared off funding projects in the country due to the “anti-business” climate. However, Mmari believes the foreign-owned companies will remain in the country.          

“I think the mining companies will only [withdraw from the country] if the new mining and energy reforms affect the bottom line so much that the business doesn’t make sense,” he says. “But even then, I don’t think they will withdraw from Tanzania. Instead they will look to cut costs.” The confrontation with the mining sector comes as the president’s approval ratings are beginning to wobble.

A tale of two presidents

When President Magufuli won the 2015 elections he quickly went to work to rid Tanzania of state corruption. He cancelled air travel expenses for government officials, conducted impromptu inspections of hospitals and removed thousands of ghost workers from the government payroll.

The moves garnered praise from Tanzanians and the international community alike. However, the introduction last year of repressive legislation, including laws that banned political rallies and penalised criticism of the government, have soured the view for many international observers, although he remains popular with some parts of Tanzanian society, according to Gordon.

“Magufuli’s reign so far is viewed differently at home compared to the outside world,” says Gordon. “Whereas some donors and investors view him as going from darling to despot, many Tanzanians approve of the measures he has implemented, but others have begun to turn away from him.”

A poll taken by advocacy group Twaweza in June 2017 found 71% of Tanzanians approve of the job Magufuli is doing. While this is very high, it is a drop of 25% compared to last year.

The drop was mainly the result of young and urban Tanzanians disapproving of some of the president’s actions. But in what could be signs of a rupture forming in the country, the elderly and those living in the rural areas still approved of Magufuli by over 75%.

But while the president continues his war on “corruption and waste” he will remain a formidable force in the country. But if jobs from the mining sector begin to be cut because investors withdraw from the country, then it could undo much of the anti-corruption work that has already been done, says Gordon.

Taku Dzimwasha

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