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Economy | Business

Tanzania: Gold Diggers and Rent Seekers Strip Tanzania’s Wealth

ANALYSIS By Mohamed Daghar

The country’s gold profits are filling the pockets of crooked companies and criminals instead of benefiting its population.

Gold accounts for a sizeable portion of Tanzania’s export earnings, overtaking tourism in 2020 as the country’s biggest foreign exchange earner. Yet year after year, the Tanzanian government loses massive amounts of gold through smuggling by transnational criminal networks.

Instead of enriching criminals, both in and outside the country, this money could be helping to improve the daily lives of ordinary Tanzanians. Ongoing infrastructure projects such as the standard gauge railway, berths and roads and services such as water and electricity connections could all use a cash injection.

Problems within the gold mining sector contribute to the smuggling. These include conflicts of interest between multinational mining corporations and local small-scale artisanal miners, and a lack of enforcement of mining regulations resulting in non-compliance by companies. There are fewer than 10 foreign gold mining corporations in Tanzania, yet over a million artisanal miners, of which two-thirds are in the gold sector.

Gold smuggling networks in the country comprise local influential families who move the goods to contacts mainly in Kenya, South Africa, and India, says international tax specialist and Tanzania mining sector researcher Luckystar Miyandazi.

Tanzania has fewer than 10 foreign gold mining corporations, and over a million artisanal miners

As with tanzanite, it is almost impossible for criminals to move gold without involving state officials. This is a persistent problem. Tanzania has changed its mining minister three times in the past five years and suspended, reshuffled or laid off dozens of government officials implicated in gold smuggling.

Last year, five state actors were implicated in helping a criminal network smuggle 27.4 kg of gold worth US$1.25 million in June and 15.4 kg of gold worth US$776 000 in December. In 2019, suspects were arrested also trying to smuggle 323.6 kg out of the country.

There is a long-standing conflict between small-scale artisanal miners and large-scale, foreign-owned mining corporations. At the onset of independence in the early 1960s, Tanzania followed the ujamaa philosophy, which advocated policies that fostered self-reliance. While some African countries depended on international financial institutions to help develop their countries, Tanzania wanted to drive its own progression.

Ujamaa advocated for the growth of village economies as the focal point for expanding Tanzania’s economy and its people, rather than urbanisation. Mining concessions were no longer allowed to be foreign-owned, and the informal mining sector grew.

It is almost impossible for criminals to move gold without involving state officials

In the 1980s, the government shifted its policies to allow foreign-owned mining corporations to operate in the country, granting them ‘spatial enclaves’ – large mining parcels of land that were inaccessible to locals. The corporations’ modern technology and access to the global gold market made it almost impossible for artisanal gold miners to compete successfully. As a result, most artisanal miners export up to 90% of their gold illegally.

Added to this, mining companies’ partial or non-compliance with regulations has resulted in unethical financial practices and created avenues for gold smuggling. Examples include foreign mining firms not complying with tax and royalty directives and paying government only a portion of the required revenue.

Foreign corporations have also been accused of tax evasion through mis-invoicing, false accounting and under-declaring revenue. Bureaucratic and onerous licensing and export permit procedures also result in non-compliance by local miners.

Tanzania’s government finds itself caught between benefiting from foreign direct investment, dealing with colluding officials, and balancing these with the grievances of small-scale miners. How does it honour the deeply embedded ujamaa approach while accommodating multinational corporations and the revenue their enterprises yield?

Mechanisms are needed to resolve conflict between small-scale miners and multinational corporations

Addressing the problems in the industry is both complex (regarding legislation and regulation) and emotive (relating to the ujamaa philosophy) and will take time to fix. Although the late president John Magufuli vowed to tackle deficiencies in the gold mining sector, progress has been slow.

Tanzania’s mining taxes were among the highest in the world, leading to amendments of the Mining Act in 2019 and 2020 that revised taxation brackets for multinational corporations and local miners. In February 2019, the government waived certain taxes for local firms and regulated others for foreign firms. Trading centres have been set up in gold-producing regions to give miners access to a regulated market rather than an illicit one.

These steps are a start in dealing with gold smuggling. The registration of local miners also needs to be streamlined, and the bureaucracy reduced in-licensing and export permit procedures.

Government must urgently establish mechanisms to resolve conflict between small-scale miners and corporations. Cooperatives or unions for local miners could provide a platform for hearing and dealing with their concerns, and taking forward mutually beneficial agreements. Such steps could enable artisanal miners to make a living alongside the operations of multinational corporations.

SOURCE:

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Economy | Business Tanzanian News

Vodacom Tanzania Appoints Sitholizwe Mdlalose New MD

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Economy | Business

Tanzania’s New Mobile Money Tax Is A Blow To The Booming Sector

By Priya Sippy


Published August 5, 2021


A new government levy on mobile money introduced last month in Tanzania has sparked outrage from citizens due to the significant increase in costs. With 26 million people, almost half the country’s population, using mobile money the surge in prices has been felt widely.

The tax, which has increased the cost to send, withdraw, and transfer money to the bank, was met with uproar from customers. As a result, the government has agreed to review the charges. Dr. Mwigulu Nchemba, the Finance and planning minister said that the president heard people’s complaints and has instructed the government to review the law. No changes have yet been made.

Tanzania’s mobile money tax is a threat to the booming industry
Tanzania’s telecom companies noted an immediate change since the government introduced the levy. “Our revenues are dropping drastically because consumers are not using the service,” said Hisham Hendi, the chairman for Tanzania Mobile Network Operators Association and Vodacom Chief Executive. “The situation is not good at all.”

“Mobile money is an ecosystem. This tax will have unintended consequences along the supply chain for value-add services like microinsurance and payGo (pay as you go) services which are not possible without mobile money wallets,” said Mrusha Jones, Founder at Innovation Hub255. “The mobile money agents—wakala—will also be affected. They will get lower commissions if there are fewer transactions.”

The government is however downplaying the negative effects of the tax, claiming that while there has been a slowdown, the drop in transactions has been “minimal.”

Commenting on the new tax, GSMA told Quartz that they were concerned about the impact of the new levy on the affordability of mobile money services and the adverse knock-on effects on financial inclusion in Tanzania.

Before the tax was introduced, Tanzania’s mobile money industry was booming. In 2019, a total of 9.5 trillion shillings ($4 billion) was transacted through the system. The number of mobile money accounts stood at nearly 26 million in December 2019, while the market size has been valued at US$45.5 billion.

Initially used to send and receive money, mobile money has since become the backbone of a broad range of public services, including health, education, and social protection. However, with the Covid-19 pandemic hitting Tanzania’s economy hard, the government introduced the tax in an effort to raise its revenue collections to finance the 2021/2022 national budget.

The levy increases prices between $0.0043 and $4 on mobile money transactions, depending on the amount sent and withdrawn. A calculation of the charges indicate that sending Sh1 million ($430) to someone and having the money withdrawn will cost a total of Sh31,000 ($13) if all the current and new charges are added up.

Those living in Dar es Salaam now prefer to visit my shop and pay in cash, but I have lost customers in other regions.


With 26.1% Tanzanians living below the poverty line (equal to $1.35 per person per day in purchasing-power-parity terms), the new tax is a significant blow. In particular, those living in rural parts of the country, where it is typically harder to access formal banking, will be affected. In east Africa, 45% of all ‘key users’ in Uganda, Tanzania, and Kenya live in rural areas.

There are also concerns the levy will hinder the growth of the country’s business and startup ecosystem.

“The new government tariffs have really affected online businesses because the cost is increasing for the customer. Those living in Dar es Salaam now prefer to visit my shop and pay in cash, but I have lost customers in other regions,” explains Anastasia Newman Goronga, founder of Aromatherapy Tanzania. “The cost might look minimal, but it is a large amount for small businesses.”

Zahoro Muhaji, the CEO of the Tanzania Startup Association, added that “mobile money is very important for startups in Tanzania. Almost 90% of businesses opt to receive payments through mobile money, as it is more efficient than cash or bank payment.”

“The impact has already been felt and if it stays this way startups will be affected badly. Some have already felt the pinch,” he said.

More African countries are raising taxes on mobile money during the pandemic
Tanzania is not the first country in sub-Saharan Africa to tax mobile money. Uganda, Democratic Republic of Congo, Malawi, and Cote D’Ivoire similarly introduced taxes which were met with public outcry. In Uganda, a 1% tax increase was reduced to 0.5% after complaints. Several months after it was introduced, the overall industry transaction values had dropped by 24%.

It is yet to be seen whether Tanzania will follow in the footsteps of other countries that have amended the taxation. While the government is expected to share the outcome of their review on the new levy in August, Tanzania’s mobile money customers wait eagerly for answers.

SOURCE: Quartz Africa

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Economy | Business Politics Rich People

Tanzania: President @SuluhuSamia Won Accolades From @AlikoDangote, Africa’s richest man, and fellow billionaire Mohammed Dewji (@moodewji) For Her Business-friendly Noises. But Her Government’s Crackdown On Opposition Leaders is Raising Some Concern.

👉Economy could get boost from $30 billion natural gas project.
👉The government still has much work to become business friendly.

Tanzania’s new President Samia Hassan won accolades from Aliko Dangote, Africa’s richest man, and fellow billionaire Mohammed Dewji for her business-friendly noises. But her government’s crackdown on opposition leaders this week is raising some concern.

Since she took office on March 19, Hassan — Africa’s only female head of government — has signaled a new business-friendly era, pledging to reverse her predecessor’s policies that antagonized investors and hit foreign investments. Hassan, 61, promised to dismantle barriers put up by former President John Magufuli and resurrect a $30 billion natural gas project, prompting Dangote and Dewji to say Tanzania seems to be opening for business again.

On Monday, however, Tanzanian authorities dragged Freeman Mbowe, the leader of the main opposition party, to court over terrorism and economic sabotage charges. That came after he and other party officials were arrested the week before, just hours before they were to hold a meeting on constitutional reform — demanding a reduction in presidential powers and amendments to the electoral process. The arrests cast a shadow over what was turning into a post-Magufuli, good-news story for Tanzania.


The “arrest will obviously give ESG-conscious investors some cause for concern,” said Connor Vasey, an analyst at Eurasia Group. “That said, Hassan has publicly discarded the constitutional debate in favor of focusing on economic reforms. The lack of policy distraction could be taken as a positive by some in the investment/business community.”

Like Dangote and Dewji, investors began to give Tanzania another look after the death on March 17 of Magufuli, who tore up agreements his predecessors signed with companies, demanded usurious taxes from businesses and denied the existence of Covid-19 in his country. Foreign direct investment as a percentage of gross domestic product steadily declined from 2015. Nicknamed the “Bulldozer,” for bluntly speaking his mind and his uncompromising stance on corruption, Magufuli’s reign saw Tanzania slip 10 notches in the World Bank’s Ease of Doing Business rankings to 141 out of 190 countries last year.

Hassan has swiftly moved to fast-track several large projects that had been stalled. They include the liquefied natural gas terminal planned by Equinor ASARoyal Dutch Shell PlcExxon Mobil Corp. and other partners and a $3 billion joint venture with China’s Sichuan Hongda Co. for an iron ore and coal mine. In June, she said her government has resumed talks on a planned $10 billion port project backed by China, suspended by Magufuli in a disagreement over terms.

“We are reviewing around 88 laws that were identified as not being business friendly,” Minister for Industry and Trade Kitila Mkumbo said in an interview. “There is concern that there are too many regulatory authorities in this country. We are looking at the possibility of reducing them. We want civil servants to see themselves as business facilitators rather than business controllers, and that is really a question of changing mindsets.”

Hassan’s moves are aimed at luring sorely needed investments to add jobs in a country where 44% of the people are below the age of 15 years. Her decision to revive the gas project could make it one of Africa’s largest producers of the cleaner energy by 2028, with the central bank estimating that the start of the construction of the LNG terminal in 2023 could add 2 percentage points to economic growth.

“Hassan is promising a transformative agenda in economic policy after five years of economic quagmire and lack of clarity in economic philosophy” said Bravious Kahyoza, an economics lecturer and analyst based in Dar es Salaam.

For all her moves to reverse Magufuli’s economic legacy, Hassan seems to be doing little to turn her back on the political-freedom constraining steps taken by her predecessor. Magufuli’s rule resulted in the erosion of Tanzania’s civil society, prompting comparisons with neighboring Rwanda’s President Paul Kagame, who while earning praise for stamping out graft, quelled any form of dissent.

Hassan, who like Magufuli, comes from the ruling Chama Cha Mapinduzi party, is close to Magufuli’s predecessor Jakaya Kikwete, who conceived, initiated and passed some of those restrictive laws.

“She’s had this opportunity to redress how regressive Magufuli’s presidency was,” said Oryem Nyeko, a researcher at Human Rights Watch in Uganda. “The arrest and the timing of it really just doesn’t look good as far as the hopes that many people had for change. Attacks on opposition was a major part of Magufuli’s presidency. It appears that she’s following in that direction.”

Tanzanian government spokesman Gerson Msigwa dismissed any suggestion that Mbowe’s arrest was politically motivated, saying everyone “will be subjected to the law if they are suspected and accused of criminal conduct.”

The African Commission on Human and Peoples’ Rights voiced its concern, saying in a statement that the “lack of strict adherence to the right to due process of the law enunciated in Article 7 of the African Charter leads to abuse of the right to be free from arbitrary arrest and creates an atmosphere of fear on the part of opposition parties.’’

Meanwhile, Hassan’s ties with Kikwete could give the former president and his confidants an outsize influence over economic decision-making, Eurasia Group’s Vasey said. On his watch, the country recorded some impressive FDI growth figures and had a much more cordial public-private sector relationship, he said.

“She’ll be balancing Kikwete and Magufuli-era policies and it’s unclear how the private sector will ultimately digest that,” Vasey said.

Tanzania’s economy has fared better than most in the region since the onset of the pandemic, with the the International Monetary Fund estimating it grew by 1% last year when most economies shrank, while forecasting it to expand by 2.7% this year. The government put last year’s growth at 4.8%. That’s still far short of the near 7% growth rates it enjoyed over much of the last decade.


For now, Hassan — who was educated at Mzumbe University (then called Institute of Development Management) and the University of Manchester — seems to be taking economy-bolstering steps. In addition to seeking the resurrection of projects, she has started vaccinating her people and has approached the IMF for an emergency loan to boost Africa’s third-largest gold producer and top exporter of cashew nuts.

“We have more open discussions and more willingness from the government to work collaboratively,” said Jens Reinke, the IMF’s resident representative in Dar es Salaam, the commercial capital. “There are a lot of indicators that point the right way.”

While the LNG project won’t be a silver bullet, it would help shore up government finances, Reinke said. The planned LNG facility would be about 130 kilometers (80 miles) from a similar project in neighboring Mozambique, where TotalEnergies SE has indefinitely halted work because of an escalation in insurgency linked to Islamic State. That may provide Tanzania the opportunity to tap a fast-shrinking window in a world that’s increasingly moving away from fossil fuels, according to Shani Smit, an economist at NKC Africa Economics in Paarl, South Africa.

Equinor said it was encouraged by Hassan’s recent comments on the LNG sector, and was ready to start negotiations on what’s known as a host government agreement that’s critical for the project to proceed. Shell said it’s pleased the government is prioritizing the project, and is looking forward to more talks.

“There is still a lot of work to do and a long way to go,” Ola Morten Aanestad, an Equinor spokesman, said. “Before we can progress this project any further, we need to get a commercial, fiscal, and legal framework in place that demonstrates a viable business case.”

Source: Bloomberg