[South Africa’s] mining sector has reached a crossroads and requires some major decisions, including much needed buy-in from all stakeholders. Without it I’m certain the medium to long-term impacts of bad decisions and messy legislation will leave the industry in shadow.
- Laura Cornish, Editor
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Armadale Capital
East Africa  
16 March 2017

Regulatory headwinds mounting for Tanzania’s mining sector

The mining ore export ban in Tanzania announced in March 2017 is unlikely to be implemented. This is the view of BMI Research.

However, the company cautions that the proposal is another sign of growing governmental regulations that may limit future investment and growth in the mining sector.

The Tanzanian government's announcement this month that it will ban all ore exports from the country is the latest step in a series of regulatory measures taken by President John Magufuli’s administration that will pose downside risks to the country's mining industry growth in the coming years.

BMI Research, a unit of the Fitch Group, expects Tanzania's mining sector growth to be the third-fastest in the region for 2017-2018 at 8.25%, but to drop off considerably thereafter until 2021.

The Tanzanian government's export ban, aimed at increasing value-added beneficiation within the country, will more than likely result in a compromise similar to the January 2017 export ban moderation in Indonesia for two key reasons:

Firstly, Acacia Mining, the largest miner in the country, is currently in a tax dispute worth US$41 million with the Tanzanian government, making it likely that the recent export ban is actually a means for the government to gain leverage in order to obtain a favourable outcome in the litigation.

Furthermore, a precedent was set last year when a government proposal to end various tax incentives granted to Nigerian cement manufacturer Dangote Cement ended in a compromise, following the suspension of production by the company.

Secondly, Tanzania currently has no gold refineries and only one copper refinery, which means the country exports a very limited amount of refined copper, estimated to be worth $480 000 in 2015, compared with $46.5 million exports of copper ores.

Because refining facilities take several years to be built, the country will not be in a position to refine all the ore it produces for now, meaning its export revenues will significantly decrease.

For example, mining ores (excluding gold) accounted for 8% of Tanzania's total exports in 2015. Furthermore, a study by the Ministry of Energy and Minerals in 2011 concluded that for a copper smelter to be commercially viable in the country there needs to be a feed-stock of at least 150 000 tpa.

Regulatory crackdown a concern for economic growth...

BMI's Africa Country Risk team believes that recent policies aimed at bolstering fiscal revenues and a crackdown on tax evasion by the Magufuli administration will effectively increase investor uncertainty across a variety of sectors and have a direct negative impact on the country's future growth prospects.

While the company forecasts real GDP growth in the country to rise from 6.3% in 2017 to 6.5% in 2018, the country's GDP growth will actually slow down to 5.8% by 2021.

…and mining sector growth

Even though it is unlikely that a full ore export restriction will be implemented, the announced ban is another example of growing regulatory measures taken by the Tanzanian government that will pose downside risks to the country's already declining mining industry growth in the coming years.

Authorities have been tightening controls in order to help the country benefit from its large mineral reserves. As a recent example, in an attempt to increase local ownership within the sector, the government announced in November 2016 that mining firms holding special mining licences in Tanzania must list at least 30% of their shares on the Dar es Salaam stock market, and have a minimum of 30% local ownership of paid-up shares in the next two years or risk having their licence cancelled.

The special licences are a superior type of mining licence for projects with an investment over $100 million which extend up to 25 years, compared with a normal mining licence which grants tenure up to 10 years.

This requirement will reduce investor incentives to enter the market as listed companies may be subject to stricter audit procedures that will impact their operating costs.

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