Investments Benefits Study (Sustainable Management of Minerals Resources Project)

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Investments Benefits Study (Sustainable Management of Minerals Resources Project) Tanzania Investments Benefits Study (Sustainable Management of Minerals Resources Project) UNITED REPUBLIC OF TANZANIA MINISTRY OF ENERGY AND MINERALS SUSTAINABLE MANAGEMENT OF MINERAL RESOURCES PROJECT (SMMRP) IDA CREDIT 4584-TA INVESTMENTS BENEFITS STUDY FINAL REPORT, SEPTEMBER, 2011 Prepared by in association with Economic and Social Research Foundation (ESRF) AND MTL Consulting Company Ltd Tanzania Investments Benefits Study (Sustainable Management of Minerals Resources Project) Acknowledgements Oxford Policy Management would like to thank the many individuals who have contributed to this study. We are particularly grateful for the information and data provided by the three companies, as well as to the many community members who gave generously of their time to share their perceptions on the benefits and costs of living together with considerable mineral wealth. The aim of this study is to provide a baseline of economic and social data to measure the benefits from mining in four locations in Tanzania. We hope that by presenting a rigorous quantification of the benefits and impacts of mining the level of debate and quality of policy prescriptions can be dramatically improved. Angus Maddison from the University of Groningen, who sadly died on 24 April 2010, said that the essence of quantifying issues is that it makes the facts behind debates “more readily contestable and likely to be contested”. In recent years, a wealth of information has been produced on the positive and negative impacts of mining in Tanzania. Drawing on Angus Maddison’s advice we hope that in providing these quantitative and qualitative findings, and recommendations, other scholars and critics will be inspired to provide their own to this important debate. Any errors or omissions are, of course, the responsibility of the authors. For more information on Oxford Policy Management please visit www.opml.co.uk/issuescat/extractive-industries i Tanzania Investments Benefits Study (Sustainable Management of Minerals Resources Project) Executive summary Mining’s already dominant contribution to Tanzania’s economy is set to increase in coming years. However, the strong national-level performance must not obscure the fact that, at a local level, the picture is far less positive. Many communities feel the arrival of large-scale mining has, on balance, brought more challenges than benefits. When mining revenues start to flow significantly in the next few years, the effects will become even more intense. This report calls for an integrated, multi-level response and sets out some of the milestones towards achieving this. Tanzania is one of Africa’s most mineral-rich countries and has experienced a boom over the last decade, with mining doubling its contribution to the country’s high economic growth rates since 1998. One of the most hotly debated elements of the mineral sector – in an often polarised debate – is the level of taxation of large companies. Yet the overall tax-take from mining almost never arose in discussions with communities undertaken as part of this study. Instead, the subject that figured in almost all discussions was the availability of jobs or lack thereof. This discrepancy between the policy debate and the reality on the ground is symptomatic of the challenge facing the country’s mineral sector. The missing element has been a clear and objective appraisal of mining’s impacts, based on both quantitative and qualitative evidence. This study aims to provide this substantive evidence by analysing the social and economic benefits from mining in selected regions, together with the perceptions of local communities regarding these benefits. Four large mines (three gold, one diamond) were chosen by the government to participate in the study.1 In each case, we found that while the mines have, for the most part, made commendable efforts to act responsibly, the impacts of their efforts have been limited at best. While there is more the companies could be doing, the real challenges lie in the realm of institutional capacity and the country’s governance framework. Politically, Tanzania is a relatively stable country with a strong democratic tradition. One political party has governed the country since independence and, although recently the balance of power may have been shifting, there is currently limited domestic pressure for reform or improvements in governance. This has implications for the degree to which the economic and social benefits of mining can be enhanced. Implicit in this comment is the fact that the way the mineral sector is governed is currently ineffective. Unlike other economic sectors, mining remains strongly controlled from the centre. However, because mining’s impacts are most significant at a very local level, a centralised bureaucracy is not ‘fit for purpose’. It also makes it difficult for mining to integrate with the rest of the economy, thus limiting the degree of employment and business created as a result of mining. A common theme of the report is the lack of skills and resources at local levels of government. Combined with under-representation and historical policy inconsistency from central government, it has been difficult for companies to know how and where to align with local government with regard to development efforts. Companies have found themselves operating in a vacuum in the areas of health, education and infrastructure services. In the continuing absence of government capacity, communities have come to depend on the mines for these services, further undermining local government’s ability and credibility. 1 Geita Gold Mine, Mwadui diamond mine, Bulyanhulu and Buzwagi gold mines. ii Tanzania Investments Benefits Study (Sustainable Management of Minerals Resources Project) Meanwhile, management of revenues in general, and mineral revenues in particular, is problematic in the country for a number of reasons. For example, the Presidency – along with appointed regional and district commissioners – exercises considerable influence over funding, creating further ambiguity over where and how mining companies might best deploy their available social and economic development budgets. There have, however, been some improvements away from the highly discretionary nature of budget allocations and the associated personal power relations this entails, but there remains limited local authority to manage budgets effectively. Applying the World Bank’s governance indicators to Tanzania shows there have been improvements in the areas of ‘Control of Corruption’, ‘Voice and Accountability’, ‘Political Stability’ and ‘Government Effectiveness’ but deterioration in the areas of ‘Rule of Law’ and ‘Regulatory Quality’. However, in several of these indicators the country started from a low base – in particular ‘Control of Corruption’ – and so the country is mid-ranking overall for its governance in relation to other African countries. The recent Tanzania Extractive Industries Transparency Initiative (TEITI) report initially found significant discrepancies between the amounts of tax paid by companies and the amount of revenues received by the government, underlining the urgent need for strong governance in the sector and ongoing issues of corruption. Revenues will come to be the largest and most visible contribution from mining in coming years. Missing out on even a small part of this critical benefit stream will be a huge loss for Tanzania. The TEITI audit report published in February 2011 found that the combined tax payments from the entire mineral sector were around US$ 100 million. This sum can be usefully contrasted with the US$ 123 million procurement expenditure from just two of the mines examined in this study or the US$ 75 million of wages paid by the four mines in 2009. The comparison highlights the fact that, while tax payments are an important economic benefit from mines, their role as purchasers of goods and services (including labour) is potentially even greater. None of the community respondents commented on the levels of tax being paid nationally but instead there was a sense of frustration regarding the lack of benefits arising from a local government levy (LGL) of US$ 200,000 that is paid directly to local governments. Such findings highlight the gap between national policy and priorities and perceived benefits at a local level. Turning to some of the local-level issues, the report finds that, for each of the mines, an overall majority of community respondents have negative perceptions of the benefits from mining, with respect to most of the benefit streams covered. However, it should be noted this finding was not across the board. There were huge variations in perceptions across the villages surveyed, due to the varying economic, social and geographic characteristics of these communities, and depending on age and gender. Employment is the critical issue for local communities in Tanzania’s mining regions. Modern mining’s contribution to overall employment is relatively limited, with the total number of direct employees estimated to be around 10,000, out of a non-agricultural workforce of 3 million. The Tanzanian case is not atypical. The opportunities to create indirect jobs and enterprises along mining’s supply chain are more significant and all four companies have made efforts to maximise local job creation, although with mixed results. Communities generally do not feel the mines have provided good employment opportunities and benefits. Despite company figures showing relatively high levels of local procurement, definitions
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