Behind Tanzania’s President John ‘The Bulldozer’ Magufuli’s mining sector cleansings

PUBLISHED: Fri, 26 May 2017 17:33:57 GMT

On Wednesday, May 24, President John ‘The Bulldozer’ Magufuli fired Minister of Energy and Minerals Sospeter Muhongo, Energy Ministry Permanent Secretary Justin Ntaikwa and Tanzania Minerals Audit Agency (TMAA) Chief Executive Dominic Rwekaza – in addition to dissolving the agency’s board of directors.

The move comes after a report by a presidential committee tasked with investigating the sector found that mining companies had been under-declaring the value of their exports.

Magufuli set up two committees to look into the mining sector. The first, constituted by academics and professionals in the sector, was tasked with investigating the contents of concentrates in containers held at Dar es Salaam port and presented its finding to the president on Wednesday. The second, made up of lawyers and economists, is tasked with looking into the economic impact of exporting concentrates and has yet to release its findings.

Singled out for special attention in the president’s televised address on the issue was Canadian mining firm Acacia Mining (majority owned by Barrick Gold) – the largest gold miner in the country.

The company has denied any wrongdoing. According to The Citizen, the investigation found an average of 1,400 grammes of gold per tonne of mineral sand in containers, but the TMAA had only indicated an average of 200 grammes. Reuters reported that the firm had declared 1.1 tonnes of gold in the containers while the analysis by the committee had shown there was as much as 15 tonnes in them.

Furthermore, discrepancies between recorded copper and silver ratios and actual amounts were found while royalties on compounds like iron, sulphur, rhodium, iridium and lithium were not being paid despite them forming part of the concentrate.

The committee recommended that the ban on exports of metallic and mineral concentrates, in effect since March 2, should remain in place.

Acacia’s stocks plummeted 14% on the London Stock Exchange in reaction to the announcement. In 2016, gold and copper concentrate amounted to 30% of Acacia Mining’s group revenues. It stated in March that it was losing $1m a day due to the ban on the exports of concentrates.

The mining sector has become a significant source of export revenues.

Gold is Tanzania’s most important mineral with regard to exports and the only mineral amongst its top-four export commodities. Receipts from the yellow metals rose 23.9% y-o-y during the year ending March, reaching just under $1.5bn. The mining sector currently accounts for around 3% – 4% of GDP, but the government has stated that it plans on increasing the sector’s contribution to 10% of national output by 2025.

This latest development comes after a long line of initiatives taken by the government to overhaul the sector which has pitted it against mining firms and dented investor confidence.

Last year the government issued regulations making it compulsory for holders of special mining licences to sell 30% of their companies via initial public offerings within two years. The regulations were amended in February to make the new deadline August 23. Acacia Mining listed on the Dar es Salaam Stock Exchange (DSE) in 2011 and it is unclear how the regulation would affect it.

Other miners – such as AngloGold Ashanti and Petra Diamonds – still need to list.

On March 2, the ministry of energy and minerals banned the export of concentrates in order to force companies to process them in the country by setting up gold smelters.

According to media reports, 99% of gold mined in the country is already processed there, with the concentrate left for export needing complex technology to separate – a claim Magufuli, a trained chemical engineer, rubbishes.
A mining executive was quoted in The East African on March 22 saying “A study done in 2011 showed a smelting plant in Tanzania will cost $500m. Raising the money will be difficult as smelting cannot be profitable in the country.” Of particular concern is the lack of a steady supply of power from the national grid.

Investors, who prize policy and regulatory certainty, will be rattled by the confrontational approach Magufuli has taken. But, on the other hand, investors dislike rampant corruption and may appreciate a president that appears to be getting Tanzania’s house in order.

Cleaning up the country’s bureaucracy is an almost religious calling for the president.

Addressing a congregation on April 30, the devout Magufuli said “What we do (in fighting evils) aims at straightening the country to facilitate fast, real economic development. I want you to believe that I’m doing this on your behalf, the presidency is yours… I am trying to act in the will of God… as the country, we had reached a terrible point, we were heading to a disastrous end.” He later added “Maybe the country was waiting for somebody like Magufuli to cleanse it.”

The worrying use of the third person aside, such statements are important in understanding his self-image.
The Manichean Magufuli is on a mission, but he is fighting corruption by firing rotten apples and micromanaging rather than by building institutions and opening the political space so that a strong opposition can keep the government in check.

His route is unsustainable as it is centred around himself.

Investors, and ordinary Tanzanians, would get both greater certainty and a sustainable method of keeping corruption in check if he only embraced democratic consolidation and directed his fervour toward institutional development.

Sign Up for Our Newsletter Daily Update
Get the best of CNBC Africa sent straight to your inbox with breaking business news, insights and updates from experts across the continent.
Get this delivered to your inbox, and more info about about our products and services. By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.