Tanzania literally sits on a goldmine; the country also has sizeable quantities of gemstones, diamonds and a vast array of other much-sought-after minerals. Tanzania is Africa’s fourth largest gold producer with the shiny metal accounting in 2015 for $1.27 billion in revenue, which was 89 percent of the country’s total mineral exporting revenue.
Despite these mineral resources and income, Tanzania remains one of the poorest countries in the world. Among the factors exacerbating this poverty are global mining companies. Over the years, these mining companies with headquarters in Canada, UK and elsewhere in Europe have been able to influence policies and win dubious mining contracts that gave them unfettered access to extractive mining, which ruthlessly exploited the country, its people and its environment.
A 2008 mining report revealed how the country was losing large amounts of money from foreign investment in the sector due to low royalty rates and generous tax exemptions. There is also the question of transparency — some companies are said to be falsifying production and profit figures. Many of these companies while continuing to loot the country of its resources, have claimed a difficult operating environment and falling global prices to report recurring annual losses.
Now, the country’s President John Magufuli has ordered the companies to either shape up their act or ship out. “It is inconceivable that companies continue to operate if they were perennially making losses; it is better for them to leave,” he said. Tax evasion, corruption and mismanagement of the country's natural resources have been at the core of the President's agenda since he came to power last year.
One of the leading gold mining companies in Tanzania is the Canada-based Acacia Mining, formerly known as African Barrick Gold, which despite mining from three separate mines has repeatedly reported incurring losses. The company declared a net loss of $52 million in the first quarter of 2015, after setting aside $70 million to settle an historic tax bill from the government.
The Tax Revenue Appeals Tribunal in Tanzania recently found the multinational company in tax arrears, and accused it of engaging in a "sophisticated scheme of tax evasion" since 2010. The tribunal ruled that the mining firm failed to pay taxes while still paying more than $400 million in dividends to its shareholders from its gold-mining profits in the country.
"Tanzania has a lot of minerals, but there have been a lot of funny deals in the past. We have to look carefully at our laws so that we move forward as a country," said President Magufuli. He accused the mining companies of a lack of transparency in their mining operations and failing to comply with the country’s tax codes.
He said the government recently approved new mining regulations aimed at ensuring that the benefits of the mining sector are shared more equitably between multinational mining companies and the state. The government also passed a mining law in 2010 that increased the royalty paid on minerals like gold from 3 per cent to 4 per cent. It also required the government to own a stake in future mining projects and for mining companies to be listed on the Dar es Salaam Stock Exchange.
“Combating international tax avoidance and evasion, corruption and weak governance are crucial if Africa’s people are to benefit from the continent’s vast natural resource wealth”
Former UN Secretary-General and Chair of African Progress Panel Kofi Annan
Africa continues to lose more through illicit financial outflows than it receives in aid and foreign direct investment.
Trade mispricing, the deliberate over-invoicing of imports or under-invoicing of exports by entities in a country, usually for the purpose of avoiding paying tax or levies in that country, alongside other illicit outflows cost the continent $38.4billion and $25billion respectively between 2008 and 2010.
The revenues generated for major companies in many cases dwarfed the gross domestic product (GDP) of the countries they operate in. For instance, in 2012 the global oil firm Shell’s total revenue of $272 billion was higher than the GDP of most nations in Africa and more than the GDP of Africa’s top two oil exporters — Nigeria ($244 billion) and Angola ($104.3 billion).
In conflict-embroiled Democratic Republic of Congo (DRC), the privatization of five state-owned assets to foreign investors, operating through offshore companies registered in the British Virgin Islands and other jurisdictions, led to loss of $1.3 billion to the country.
This was more than double the health and education budget of DRC, a country associated with the sixth highest child mortality rate in the world, endemic malnutrition and seven million out of a total of 11.2 million children without access to school. Meanwhile, the under-pricing generated returns of over 500 percent to the offshore companies involved.