Tanzania described as a source of ‘conflict minerals’

 

By Lucas Liganga
The Citizen Chief Reporter
Dar es Salaam.

A new United States legislation that classifies Tanzania as a source of “conflict minerals” poses devastating effects to the national economy, with annual gold export earnings expected to decline by a staggering $75 million and result in massive job losses in the mining sector.Tanzania could shed up to 2,000 jobs in the mining sector due to the burdensome regulations originating from the law, the Tanzania Chamber of Minerals and Energy (TCME) has warned in a submission to the London-based World Gold Council (WGC)

The Citizen has learnt that the US legislation could turn away foreign direct investment (FDI) inflows into Tanzania by reputable international companies.“For example, a 10 per cent reduction in demand for gold from Tanzania would result in a reduction of around $200 million in FDI due to reluctance to develop projects,” says part of the TCME submission to the WGC.Between 2000 and 2008, overall FDI in Tanzania rose from $2.78 billion to $5.94 billion, with over $2 billion of this increase attributed to mining investments.

The Dodd-Frank Wall Street Reform and Consumer Protection Act signed by US President Barack Obama in July 2010 is primarily aimed at improving transparency and accountability in the supply of minerals coming from conflict zones of the Democratic Republic of Congo (DRC). However, the controversial 2,300-page legislation erroneously describes Tanzania as a “DRC country” and imposes burdensome mineral export regulations on the country.

The legislation identifies “conflict minerals” as gold, wolframite (tungsten), cassiterite (tin) and columbite-tantalite (coltant) from the DRC and the nine adjoining countries -- Tanzania, Central African Republic, Sudan, Uganda, Rwanda, Burundi, Zambia, Republic of Congo and Angola. These minerals are commonly used in a variety of commercial products, such as automobiles, cellular phones, and airplane engines.

TCME chairman Ami Mpungwe, yesterday confirmed to The Citizen that his chamber has contacted the WGC expressing concern over the matter because the US legislation classifies Tanzania as a source of “conflict minerals”. He said TCME last week wrote to the US Securities and Exchange Commission expressing its grave concern about the potential impact of draft regulations on the gold industry in Tanzania.

“These impacts were, I am confident, neither desired nor foreseen by the architects of the legislation…,” said Mr Mpungwe in the letter copied to the minister for Energy and Minerals, Mr William Ngeleja; the Minister for Foreign Affairs and International Cooperation, Mr Bernard Membe; and Tanzania’s ambassador to the US, Ms Mwanaidi Sinare Majaar.Contacted for comment, Mr Ngeleja said the Attorney General was handling the interpretation of the US law on conflict minerals.

According to the minister, Tanzania had nothing to do with laws passed by other countries unless they were international conventions or protocols. But he said that he would be in a better position to comment on the issue today.

Tanzania accounts for over 61 per cent of the total gold production from the so-called DRC countries cited in the US legislation. It’s for this reason TCME fears that Tanzania may be penalised “as the largest gold producer in the region.”According to TCME, the legislation could discourage legitimate and responsible mining investment in Tanzania, contrary to the international community’s objectives of promoting growth and prosperity in developing countries.

“We are very concerned that at any point in the supply chain for gold, an actor may determine that the uncertainties in the process, the costs of due diligence and audit, or the reputational risks of defining their product or a constituent part as containing a ‘DRC conflict mineral’ are too great to bear,” says TCME.

The Chamber argues that the US legislation could lead to “stigmatisation” of responsibly produced gold in Tanzania. “This could in turn result in substitution with minerals not covered in the legislation, such as copper replacing gold, substitution with gold from other countries not covered in the legislation and substitution with gold produced from outside of Africa,” says TCME.

As a result of the legislation, the US Securities and Exchange Commission (SEC) has added several new reporting requirements applying to companies listed on the New York Stock Exchange (NYSE), the world’s largest financial market.

Companies listed on the NYSE will be required to determine whether their products contain “conflict minerals,” thus the need to conduct lengthy and costly due diligence on the source and chain custody of the gold.

According to the World Bank, Tanzania has one of the strongest track records of political stability in Africa since becoming independent 50 years ago.
The US Securities and Exchange Commission has set a deadline of March 2, 2011 (Wednesday this week) to receive public comments and petitions from mining companies and governments of Tanzania and other countries that will be affected by the new rules.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC to issue its final rules by April 2011.“Indeed, in all aspects of governance, Tanzania is deemed to be considerably more advanced than the average in sub-Saharan Africa. The country is well advanced in seeking validation of its compliance with the requirements of the Extractive Industries Transparency Initiative (EITI) as a result of a close collaboration between the government, civil society and the mining sector,”  TCME elaborated.

As the most valuable of its exports, gold plays an important role in the economic growth of Tanzania, which also contributes to the political stability of the country.Tanzania is Africa’s fourth-largest gold producer with the country’s output rising from 40.9 tonnes, valued at $1.076 billion, in 2009 to 44.6 tonnes worth $1.77 billion in 2010.

It is estimated that over their lifetime, five gold mines operated by the WGC members in Tanzania will turn out $3.5 billion total tax revenues. Their annual tax revenue is projected at around $280m in 2017.