A miner inside the Bulyanhulu gold mine in northern Tanzania. The
country has been ranked as the fourth least attractive mining
destination in Africa. PHOTO | FILE
Just when Kenya and Tanzania are undertaking reforms to ensure
their mining sector plays a central role in economic growth, a report by
Canada’s Fraser Institute has cast a dark cloud on its
attractiveness, after ranking them at the bottom of the pile.
attractiveness, after ranking them at the bottom of the pile.
Its
Annual Survey of Mining Companies 2017 index ranks Kenya as the second
worst mining destination in the world, after Guatemala, and the worst in
Africa.
According to Fraser Institute, which is a
leading think-tank that shapes public policy and influences private
sector decisions through its research, Tanzania is the fourth least
attractive destination in Africa and ranks at position 78 out of 91
countries globally.
Hostile environment
Dar’s
ranking has dropped from 59 out of 104 in 2016, attributed to
increasing concern among investors over uncertainty regarding the
administration, interpretation and enforcement of existing regulations,
trade barriers, and security.
“Legislative changes in
Tanzania, which are being retrospectively applied, undermine the
sanctity of contracts and remove recourse for international arbitration
to resolve disputes with the government. This creates uncertainty and
instability and makes for a particularly hostile investment
environment,” says the report.
Industry players say that the poor ranking of Kenya and
Tanzania, which have been at the forefront of implementing initiatives
to drive growth of the mining sector, is an indication that the reforms
do not resonate well with investors.
Reviewing laws
“The
index tells policy makers that investors do not consider East Africa a
destination to put their money in, largely because the regulatory
environment is not friendly,” Moses Njeru, Kenya Chamber of Mines chief
executive officer, told The EastAfrican.
The
two countries want mining revenues to contribute at least 10 per cent of
GDP from less than one per cent for Kenya and 3.5 per cent for Dar.
In
Kenya, the government published regulations compelling foreign
companies to cede some shareholding to the government and list at the
stock market in line with the Mining Act, 2016.
The
regulations stipulate that foreign companies investing at least $100
million must list at the stock market to allow Kenyans to benefit from
the minerals and to check the mass repatriation of revenues.
But
foreign investors say they are already overburdened by the
capital-intensive exploration activities, the lack of critical seismic
data, forcing them to undertake their own surveys; the steep
compensation to landowners and the requirement that they invest at least
1 per cent of their capital in community development.
Tanzania
has reviewed its mining laws to enable it to renegotiate mining
contracts with foreign companies, which it accused of tax evasion and
under-declaring volumes and types of minerals exported.
The
laws are the Natural Wealth and Resources Contracts (Review and
Re-Negotiation of Unconscionable Terms) Bill, 2017, the Natural Wealth
and Resources (Permanent Sovereignty) Bill, 2017, and the Written Laws
(Miscellaneous Amendments) Act, 2017.
The laws seek to
increase mining taxes, force companies to renegotiate their contracts,
allow the state to own up to 50 per cent shares in mining companies,
ensure mining companies invest in local smelters to add value to the raw
minerals, create jobs as well as stamp out corrupt practices and tax
evasion.
Rethinking strategies
Following these changes, some prospective investors have held off their plans to enter Tanzania.
London-based
Tremont Investment cancelled a bid for Australia’s Cradle Resources
while Shanta Gold cancelled a takeover bid for Helio Resource Corp,
citing the new regulations.
The move has also seen
companies operating in the country rethink their strategies, with some,
like Acacia Mining, scaling down their operations.
According
to the Fraser index, although geologic and economic evaluations are
always pre-requisites for exploration, a region’s policy climate has
taken on increased importance in attracting and winning investments in
today’s globally competitive setup.
This is because 40
per cent of investment decisions are determined by policy factors while
the remaining 60 per cent are based on the assessment of a
jurisdiction’s mineral potential.
“A best practice
environment is one which contains a world-class regulatory environment,
highly competitive taxation, no political risk or uncertainty, and a
fully stable mining regime,” the report says.
The index
ranks Finland as the most attractive destination in the world while
Ghana is ranked as the most attractive in Africa at position 22
globally.
Guatemala is the least attractive
jurisdiction in the world for investment. Also at the bottom (beginning
with the worst) are Kenya, Argentina, Mozambique, Bolivia, Venezuela,
Romania, China and Nicaragua.
Ethiopia, which has seen
its once promising mining sector plummet due to a rise in illicit trade
and political instability, was also ranked among the worst destinations
in Africa after Kenya and Mozambique. Globally, it was ranked at
position 81 out of 91 countries.
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