Two Decades of Reforms in the Mining Sector in Tanzania: A Way Forward

Published: 12 March 2021

Download the Policy Brief in PDF format here:
Policy Brief no. 1 Mining Sector (PDF/2 MB)

Key Findings

While large mining companies are mainly aggrieved by tax reforms, the Artisanal and Small-scale Miners (ASM) are currently constrained by numerous taxes, high costs of formalization, inaccessibility of loans, ban in exportation of raw minerals, too high research costs, high license costs, and a lack of advanced technology for mining activities.

Because of a lack of education and traditionally influenced legal constraints to owning or inheriting land and mineral rights, most women in the mining sector end up operating unregistered, particularly in informal activities.

Policy Recommendations

Artisanal and Small-scale Mining Sector (ASM)

  • Formulate a National Formalization Policy for the ASM subsector.
  • Use Cost-Benefit Analysis to consider a further reduction of taxes and formalization costs.
  • Provide Artisanal and Small-scale miners with geological information to support more efficient mining.
  • Create space for effective participation and engagement of different ASM stakeholders in policy making that impacts them.
  • Provide or support access to capital and equipment.
  • Build processing units for mineral beneficiation.
  • Develop local capacities in resource management.

Large Mining Companies

Before embarking on further reforms, comprehensive and deep assessment/analysis must be carried out by a team of experts from different socio-economic fields in order to set long term policy strategies to find a win-win solution for both sides.

Gender Mainstreaming

  • Encourage more formalization of women miners.
  • Develop partnership between the government and other stakeholders to offer technical training.
  • Increase gender mainstreaming in local policies and incentives in the mining sector.
  • Organize sensitization/campaigns to encourage more women in natural resource governance.
  • Increase support to the ASM women with capacity building in emerging technologies, machines and equipment that support women physique.

Content

 

Introduction

The mining sector in Tanzania is currently the leading sector in growth, growing at a historical rate of 17 percent per annum, with the highest contribution in the country’s exports. For over two decades the sector has been haunted by controversies regarding its limited contribution to socio-economic progress in the country, despite massive Foreign Direct Investment (FDI) in the sector. In response to this, the government has been embarking on several reforms for 20 years to increase the contribution of the sector to sustainable and inclusive economic growth. Although massive achievements have been observed, but there is still room for further reforms to consider a win-win situation for the government, mining companies and small scale miners.

This policy brief examines existing challenges in the mining sector to provide a direction for the next phase of reforms. Specifically, the brief addresses gold mining in both the Artisanal and Small-scale Mining (ASM) and large-scale mining subsectors. Gold is selected because it is the most significant mineral in Tanzania making the country the fourth largest gold producer in Africa after South Africa and Mali.  Gold currently accounts to more than half of Tanzania’s export earnings (Bank of Tanzania (BOT), 2020).

Moreover, the brief explores challenges facing women in the mining sector in general. The brief is based on a desk review of institutional reports, ministry reports, academic papers, magazines and best practices from other countries such as Botswana, Colombia, Ghana and Mali. Key informant interviews were also conducted with mining officers from the ministry of minerals, and with regional and local mining officers. In addition to that, a survey was made in Shinyanga region to assess the challenges still faced by Artisanal and Small-scale (AS) miners as well as large-scale miners after the reforms.

 

Summary of Findings

In a span of 20 years, many reforms have been undertaken, which have revolutionized the mining sector with a historical increase in the FDI flows into the sector. In addition, over 20 years, the government has taken measures to address the challenges faced by both local and foreign investors. Some of the important reforms include a decentralized licensing system, the development of training schemes for ASM, an ASM information portal, the establishment of grievances handling and dispute resolution mechanisms and more recently an open dialogue between the government and ASM through the Tanzania Chamber of Mines. Moreover, revenue from the mining sector has increased by 53 percent with local investment surpassing USD 1 billion/Tshs. 2 trillion (International trade Administration (ITA), 2021). Despite these important reforms, large scale miners and AS miners are still raising serious grievances.

 

Artisanal and Small-Scale Gold Mining (ASM)

Despite its name, it is not a small sector. It currently accounts for 15 percent of the total gold production and employs 2 million people with a further 6 million people depending on the sector for their livelihood (Tanzania Mines, Energy, Construction and Allied Workers’ Union (TAMICO, 2019)).
Artisanal and Small-scale gold mining is an economic activity that requires heavy initial investment. For example, field data shows that a typical initial cost of setting up a single mine pit for gold involves USD 4,500/Tshs 9 million. Besides that, the AS gold miners are also required to hire at least 10 people per pit paying their wages as well as catering for their food on a daily basis. On average, it takes between 3 months to 12 months of daily extraction before getting a sight of rocks with minerals. The AS gold miners are forced to operate that way because they do not have geological reports which could help them to easily identify rocks with gold. Often times, these AS gold miners end up not getting any gold despite having incurred such huge costs.
Moreover, the AS gold miners rarely get credit facilities by financial institutions as they are deemed to be engaged in risky businesses and they don’t meet the borrowing conditions as set by the lending institutions. The major sources of credit used by the AS gold miners are the “pit financiers” who are informal rich middle men who lend to the miners for a promise of sharing in the proceeds once gold is found, an arrangement which ends up ripping the AS gold miners of their hard earned resources.

Generally, the productivity per miner is extremely low (about 0.12 grams of gold per day) due to the usage of crude tools and poor technology. Extraction involves breaking and digging the rock by men using pickaxes and sledge hammers. Shafts can extend to depths of up to between 15 and 50 meters until gold bearing rock veins are found.

Once rocks are broken from the rock walls, they are hauled to the surface where (for each 100 sacks extracted) the miners are required to immediately pay 6 percent of royalty fees and 1 percent as examination fee whereby the value for the charges depends on the auction price during that particular day. After the gold has been extracted from grounded fine sand the miners are required to again pay for the second time 6 percent royalty fees and 1 percent examination fees based on the value of gold extracted. The residue after gold has been extracted (i.e. the “makinikia”) are then processed into cyanide solution whereby any remaining gold will be extracted using ‘Carbon In Pulp’ (CIP) in illusion plants. The gold obtained from such process is charged for the third time 6 percent royalty fees and 1 percent examination fee. Before the recent reforms, Artisanal and Small-scale (AS) miners were also subject to an additional 5 percent income tax and 18 percent Value Added Tax (VAT).

To summarize, the AS gold miners are currently constrained with numerous taxes, inaccessibility of loans, too high research costs, and a lack of advanced technology for mining activities. Moreover, high formalization costs are also decried by many AS miners. To be formalized, an AS miner is required to acquire a Primary Mining License (PML) which involves an application fee of USD 25/Tshs. 50,000, a processing fee of usd 25/Tshs. 50,000 and an annual rent of USD 40/Tshs. 80,000 per hectare. Therefore, an area of 10 hectares involves an annual payment of around USD 500/Tshs. 1 million. More recently, the government banned the exportation of raw minerals which has seriously affected the ASM sector because of inadequate processing plants in the country.

Key Policy Recommendations:

  • With appropriate Cost-Benefit assessments, the government should explore a further reduction of taxes and license costs for the AS miners.
  • The government should strive to increase formalization of the ASM Sector by formulating a National Formalization Policy for the ASM sub-sector. Currently, only 5 percent of the estimated 2 million AS miners are formalized.
  • Mainstreaming ASM sub-sector into country economic programmes and plans such as the Five Year Development Plans (FYDPs). This will enable the government to properly formulate micro and macro policies for the ASM sub-sector. This also includes mainstreaming in the Artisanal part of the ASM sub-sector in country’s mining laws.
  • Providing AS miners with geological information to support more efficient mining. This involves co-operation between regional mining offices and representatives of the AS miners. Moreover, STAMICO should carry out drilling in areas allocated to AS miners and provide guidance. In addition to that, access to geological information will assist AS miners to access financial credits from financial institutions. This will also solve the persistent conflict between large and small-scale miners.
  • Enhancing effective participation and engagement of different ASM stakeholders in policy making that impacts them by strengthening their representation in different fora involving mining policies and laws.
  • Providing or supporting access to capital and equipment, including technical assistance and transforming the ASM supply chain actors into recognized professionals. This involves encouraging AS miners to have alternative businesses as security because mining is considered as an extremely risky business for many financial institutions to provide credit to. Apart from that, most financial institutions have limited knowledge of mining operations and a negative perception of the ASM sub-sector. Therefore, financial institutions should also be invited to workshops and seminars relating to mining issues as crucial stakeholders.
  • Construction of processing units for mineral beneficiation is important. There are many traders in the ASM sub-sector who are stuck with raw minerals due to the government ban of exporting raw minerals. However, oblige investors to beneficiate raw materials in Tanzania as part of their extraction license will not be effective, as many are not forward integrated. Instead, the government can speed up the process through strategic Public Private Partnerships (PPPs) by providing certain incentives to investors to support beneficiation, even if the government itself does do not invest. The recent construction of a plant in Mwanza is a good start in that direction.
  • Development of local capacities in resource management. This involves the establishment of natural resource training programmes to enhance the technological and technical capacities of local experts. Currently, there is one mining institute in Dodoma region, and plans to establish more mining institutes are in the pipeline. However, all these have focused on providing technical expertise on mining. It is important for the government consider programmes that are tailor made to the needs of mineral resource management in Tanzania.

 

Large-scale Gold Mining

There are several issues that gold mining companies are raising with regard to the recent reforms, particularly relating to taxation. An example is the requirement for government free carried interest (FCI), whereby the government is entitled to not less than 16 percent non dillutable free carried interest (FCI) shares in the capital of a mining company (depending on a type of minerals and the level of investment). Although this is not a new practice globally, the few jurisdictions that do apply this requirement each have their own expectations as to what this interest comes along with. Among the rights of the government as an holder of the FCI in Tanzania is an entitlement to not only to receive dividends but also to receive a proportionate share from any repayment of equity, shareholder loan or third party loan; but at the same time the FCI holder does not have any obligation to contribute to equity or capital. Once production starts, the immediate tax impact is the taxes based on turnover, and then (once the project moves to profit) corporate income tax, and finally imports at the time of distribution of profits by way of the free carry interest earned by the government as well as the withholding taxes (10 percent) on dividends paid to the investors. In terms of taxes on turnover, the royalty rate has increased from 4 percent to 6 percent of gross revenue, and on top of this, there is a clearance fee of 1 percent of gross revenue, and local taxes (service levy of 0.3 percent); so a total of 7.3 percent of turnover.

Corporate tax is levied at 30 percent of taxable profit, and this taxable profit will be recognized at a faster rate than in the past as the deduction for capital expenditure incurred in mining operations is now 20 percent on straight line basis (write off over 5 years) as compared to the full outright deduction in the past. A further measure to accelerate the recognition of profits is a new limitation that restricts the offset brought forward unrelieved tax losses to a maximum of 70 percent of taxable profit in a year (with any excess losses carried forward to later years). This means that where a mining company has current year taxable profits (before brought forward losses), tax will be payable on at least 30 percent of those profits. In addition, tax losses from mining operations can only be deducted in calculating the person’s income derived from that specific mining area. This can create practical challenges where you have a mining project that is one economic project but that spans more than one license area.

Whilst in principle there is an automatic entitlement to VAT refunds for a person whose 50 percent or more of turnover is from supplies that are zero rated, in practice most mining companies have not been beneficiaries of this provision in the recent past. Although the commissioner is required to respond to the application for VAT refunds within 90 days, there have been significant delays in receiving the actual refunds or even obtaining an approval to offset the refund claim against other tax liabilities. A further practical challenge was a contentious 2017 amendment to deny input VAT claims of export of raw minerals; fortunately, the restriction was removed in 2020. A recent development with cost implications are clearance fees regulated by the Tanzania Shipping Agencies Corporation (TASAC) payable to the government by any person importing machineries, equipment, products or extracts related to minerals and/or in possession of minerals prior to clearance for domestic use or export.

Apart from that, policy uncertainty can lead to investor uncertainty, limit the pool of capital available, and thus limit decisions by many major mining companies to rebalance their portfolios seeking the best returns for the least risk. Policy uncertainty also fuels moves from reputable to less reputable ventures, and can induce an eventual regression of the mining sector.

Key recommendation

  • Before embarking on further reforms, comprehensive and deep assessment /analysis must be carried out by a team of experts from different socio-economic fields in order to set long term policy strategies to find a win-win solution for both sides.

 

Gender Mainstreaming

Although women have toiled as miners for many years in Tanzania, mining is seen as a quintessentially masculine endeavor. Women make up around 30 percent of the total workforce in the sector, most of them operating in the ASM sub-sector (Tanzania Women Miners Association (TAWOMA), 2020). Due to a lack of education and traditionally influenced legal constraints to owning or inheriting land and mineral rights, most women in the sector end up operating unregistered. Promoting gender equality in the mining sector can maximize social and economic development and help reduce poverty (Mutagwaba et al., 2018).

Whilst this brief has no intention to undermine the efforts (1) that the government and other stakeholders have already done to address gender issues in the mining sector, there are still a lot to be desired in mainstreaming women in this sector. Women continue to face gender related challenges in the sector. The role of women in the mining sector is basically focused in informal activities such as digging, panning, hauling, and cooking. More policy advocacy is required for mainstreaming women in the formal mining sector. Based on field data, several recommendations are made.

Key recommendation

  • Develop partnerships between the government and other stakeholders to offer technical training and internships for young women in local and international trainings institutions on mining; while balancing job specific and transferable skills.
  • Increase gender mainstreaming in local policies and incentives in the mining sector.
  • Organize sensitization campaigns to encourage more women in natural resource governance.
  • Increase support to ASM women with capacity building in emerging technologies, machines and equipment that support women physique.

 

Conclusion

With notable achievements, challenges still exist for large scale mining companies and for Artisanal and Small Scale Miners (ASM). The government has room left for reforms to address these challenges and increase the impact of the mining sector. In designing new reforms, a careful evaluation of the current situation is important, using a Cost-Benefit Analysis approach to find a win-win for all parties.
If the momentum of appropriate reform measures is maintained and the right choices are made, the mineral sector can contribute to more than 25 percent of the country’s GDP by 2025; from the current contribution of 17 percent.

 

About the Author

Dr. Kaihula Bishagazi

Dr. Kaihula Prudensia Bishagazi

Dr. Kaihula Prudensia Bishagazi a lecturer at Saint Augustine University of Tanzania (SAUT) and a consultant in policy reforms. She has been involved in several consultancies on policy advocacy and Public Private Dialogues (PPDS) relating to Local Economic Development (LED).

Footnotes:
  1. For example, with the financial assistance from BEST-Dialogue, TAWOMA carried out an advocacy project for formalization of the ASM sector in 2007. As a result of these efforts, the government agreed to extend the length of ownership of primary mining licenses from 5 years to 7 years. Second, the Mining Act 2010 established designated areas for ASM activities. Third, PML licensing process was decentralized to zonal and resident mines offices to make the ASM formalization process more efficient and more accessible to rural communities. The formalization project resulted in an increment of 66,000 registered artisanal and small scale miners; Out of these, 15,000 were women.

Download the Policy Brief in PDF format here:
Policy Brief no. 1 Mining Sector (PDF/2 MB)