Tanzania: How Magufuli’s Report Damaged Mkapa and Kikwete’s Legacy

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  • The Tanzanian President John Magufuli ‘s mineral sands probe report has revealed how the former President, Benjamin Mkapa, steered the country in to mineral development agreements with multinational mining companies in the mid-90s – and it has now sparked discussion around alleged recklessness in crafting and enacting laws “extremely unfavourable to country’s interests”.

Undoing Mkapa Legacy

Dar es Salaam — Findings of the two presidential committees on the export of mineral concentrates and the steps President John Magufuli wants to take and get rid of the rot in the mineral sector has swiftly stained the legacy of Former President Benjamin Mkapa.

Mr Mkapa, who steered the nation to entering into mineral development agreements (MDAs) with multinational mining companies in mid-90s, is now the point of blame over alleged recklessness in crafting and enacting laws extremely unfavourable to Tanzania’s interests.

The mining laws and policies enacted under his stewardship are now blamed for denying the nation hundreds of trillions of shillings in tax exemptions and unnecessary incentives in the past two decades.

Receiving a report of a committee he formed to probe the legal and economic impact on mineral sand export on Monday, President Magufuli said he would stop at nothing to undo or reverse what he views as exploitative mineral contracts that have denied the nation hundreds of trillions of shillings.

The report reveals the government has lost between Sh68.9 trillion and Sh108.46 trillion from unpaid mining taxes due to under-declaration of mineral exports of metallic mineral concentrates by Acacia Mining plc in 19 years that the firm has been operating in Tanzania.

Prof Nehemiah Osoro who chaired the committee also revealed many instances of cheating by the largest miner in Tanzania on the one side, and on the other, administrative flaws by senior government officials, including ministers.

The report names former ministers and other top government officials who mishandled the legal and contractual part of the mining contract and recommended legal action against them. President Magufuli later instructed security organs to question to hunt down the officials.

The question in many peoples’ lips is: how can Mr Mkapa escape liability over decisions he made and jealously defended with regard to opening the doors for investment in the mining sector?

It all started when Mr Mkapa’s government passed mineral sector laws in 1997 to promote economic development by opening the doors for the mining multinationals to start large scale production.

The Parliament then rushed to enact the Mining Act 1998 to support the implementation of the Mining Policy of 1997, which, it has come to pass, were extremely favourable to foreign mining companies at the expense national interests.

And President Magufuli’s vow that all who were involved in one way or another including past ministers and government executives responsible for minerals should be investigated has added a stain as to the legacy of the man many consider to be President Magufuli’s mentor who had a role in his decision to bid for presidency.

It was Mr Mkapa’s administration that, in its first step in implementing the new mineral policy, amended several existing financial laws in 1997 to attract foreign investors in the mining sector.

In the same line, the government introduced significant changes to the Foreign Exchange Act to provide incentive and exemptions for mining companies and their contractors.

The exemptions provided to foreign mining companies included the income tax, value added tax, fuel levy and customs duty are blamed for insufficient tax revenues for foreign mining companies.

The policy passed under the Mkapa administration is also blamed for locking out Tanzania from playing a larger role in the mineral sector. The Mining Act, for instance, allowed 100 percent ownership of minerals and mines to foreign corporations and effectively prevented the government from entering into new joint ventures.

The laws which were enacted in haste gave the foreign mining companies up to 5-year tax holiday at the beginning of production, and pay to the government a royalty fee of only 3 per cent of the value of their mineral output. The mining multinationals were also allowed by the law to take out of the country 100 per cent of their profits. Normally, VAT in Tanzania is charged on domestic and imported goods and services but the VAT exempts mineral sector companies from paying VAT on some imported inputs and capital goods.

Other favourable terms given by the law to the companies in contracts include the one allowing for the company to maintain current tax levels throughout the “life of the project” and the right to repatriate 100 per cent of profits and the right to deduct 80 per cent of capital expenditure from tax payable.

The contracts between the Tanzanian government and the mining companies were secret and had never been a subject to public scrutiny or parliamentary oversight.

Former President Mkapa’s government and that of his successor Jakaya Kikwete have repeatedly refused to make these agreements public and denied MPs the chance to influence the terms under which foreign mining companies should operate.

President Kikwete, however, managed to push through some agreements with the mining investors which led to raising of the royalty payment from three per cent to four per cent. In the revisited agreement, the government also secured fast-tracked dates for corporate tax payment by miners such as Acacia then trading as Africa Barrick Gold, and also ensured local government in mining areas were paid a percentage of income yearly from mining activities.

But when it comes to taking the heat on the route that Tanzania took, it is Mr Mkapa who earns the roasting, even though he has defenders who feel he faced an economic situation back then requiring extra efforts to win investors to put their money in the country. Both his administration and that of Mr Kikwete constantly came under attack from rights bodies for closing their eyes on calls to turn the tide.

Some 12 years ago, President Mkapa was forced to publicly defend foreign mining investors as “not thieves” following growing criticism from a section of parliamentarians and the public that the country was not benefiting from its mineral wealth.

He also denied claims that investors were milking Tanzania dry of its natural resources and would leave the country dry. “These aren’t thieves but partners in development and the share of interests and right is assured, I will be leaving office in four months’ time and the next government, which I believe will be CCM’s, and that this equal share and right will be maintained,” said Mr Mkapa.

Experts’ Reaction

Prof Ophelia Mascarenhas agrees that the expose of massive looting has significantly stained Mr Mkapa’s legacy. “It is clear that Mkapa’s legacy is being wiped out. I think Dr Magufuli’s move to build a new legacy is right if that of his predecessors failed to benefit the citizens,” says Prof Mascarenhas, a consultant on Gender and Information and Communication Technology (ICT) Development.

She said Tanzania rushed to extractive industry to attract foreign investments but forgot there were serious legal and contractual implications of venturing into such big project. “Mr Mkapa should have noted the weaknesses in our mining development agreements the same way he did with the Economic Partnership Agreement (EPA) between the EU and the East African Countries (EAC).”

Foreign Languages and Linguistics assistant lecturer at the University of Dar es Salaam (UDSM) Mr Florence Rutechura said: “Dr Magufuli isn’t only reforming the extractive industry; he’s also uplifting moral standards of our leaders and public servants. This will hopefully change their business-as-usual style of working which took little consideration of issues of national interests.”