TANZANIA DIAGNOSTIC TRADE INTEGRATION STUDY (DTIS) UPDATE: EXTRACTIVE INDUSTRIES. 07 November, 20016

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1 TANZANIA DIAGNOSTIC TRADE INTEGRATION STUDY (DTIS) UPDATE: EXTRACTIVE INDUSTRIES 07 November, 20016

2 1 Extractive Industries strategic importance The Extractive Industries (EI) sector is made up of Large-scale Mining (LSM), Gas projects and Artisanal & Small-scale mining (ASM); Minerals make up Tanzania s largest export earnings; $1.52bn worth of precious metals (24% of total exports) and $800m worth of nonprecious minerals (13% of total exports) in 2014; In 2014, mining contributed 3.3% to GDP; LSM paid TZS381bn worth of taxes and royalties in about 4% of total internal revenue; By Dec. 2015, known gas reserves of TCF composed of 8 TCF in onshore discoveries and TCF in deep offshore discoveries; 80% of current gas production from Songo songo & Mnazi Bay is used for power generation amounting to 711MW; The ASM sector is a significant source of income for a lot of people and is key for poverty reduction and women employment.

3 2 Opportunities and recent growth trends The gold value chain encompasses activities related to mining with no smelting or further downstream beneficiation; Global gold output is mainly used in jewelry production (48%), investment and central bank reserves (44%) & industrial uses (8%). Tanzania is not significantly involved in these downstream sectors; LSM provides a springboard to a vibrant supplier sector. Current suppliers are trade intermediaries with little value added to local economy; High gas demand at competitive prices at regional level to warrant investment in a transnational pipeline transmission network; Regional coordination of investments could make gas downstream industries commercially viable; Significant value addition can be achieved in Tanzanite with minimal capital investment an opportunity for local industrialization.

4 Development Challenges 3 Weak business enabling environment constrains EI sector and linkages: Uncertainty of Government reimbursements constrains financial planning; Lack of stability and predictability of duties and tariffs; Unreliable power supply increases operating costs for mining projects; Skill deficiencies, lack of access to infrastructure and finance constrain the linkage opportunities. Regulatory framework to create upstream linkages is unclear: Local content legislation for the mining sector lacks clear definition, has no targets, monitoring mechanisms, incentives nor sanctions to achieving local content plans; Petroleum Act, 2015 provides the legal framework for local content in gas sector, but some provisions need clarification and various legislations need to be aligned; There are conflicting trade policies that may hinder domestic procurement; The joint venture provision a type of local content measure widely seen as effective in promoting domestic value addition is convoluted in the Local Content Act; WTO commitments and bilateral investment treaties (BIT) signed by Tanzania constrain the policy space for Govt to impose binding local content regulations.

5 Development Challenges Downstream beneficiating policies may have unintended consequences: Tanzanite export ban may result in smuggling & requires government support initiatives; Lack of supporting policies to develop cutting & polishing sector that also address the smaller players; Tanzanite export ban on rough stones may be at odds with WTO commitments; Domestic gas allocation from offshore gas deposits will be one of the key negotiating points with the IOCs; Domestic gas allocation needs to be agreed in advance and should not be altered thereafter; SOCs have conflicting roles & financial self-sustainability is not guaranteed: STAMICO has conflicting responsibilities, which may adversely impact the economic benefits obtained from projects it is involved in; STAMICO is subsidized; The Petroleum Act enables TPDC to focus on commercial functions, but there are still provisions that attribute non-commercial roles; TANESCO s precarious financial situation increases costs to do business in mining sector and may be a key constraint when negotiating domestic gas allocation with the IOCs. 4

6 Development Challenges 5 Formalisation of the ASM sector is proving difficult: Conflicts between the LSM companies and displaced artisanal communities have been chronic and long lasting; Environmental and health problems related to the ASM sector are devastating; ASM operations have been linked to negative social impacts and there continue to be human rights violations; The ASM sector faces a chronic shortage of capital; Despite the increase of licensed ASM activities due to changes in 2010 Mining Act, the number of new entrants into the sector outweighs the capacity to formalize; The key bottleneck to further increase formalization is lack of awareness and the lack of enforcement of the rules; A number of challenges specifically affect women miners most find themselves operating as informal and unlicensed operators; Beyond formalization, other difficulties currently affect Tanzanian women in ASM most exhibit limited education and poor mining & entrepreneurship skills.

7 Development Challenges 6 Lack of regional coordination limits opportunities to create linkages: More upstream linkages could be captured at the regional level with increased integration - RECs could enable access to larger markets for suppliers; Regional coordination is required to address Tanzanite smuggling; The East African Power Master Plan notes that member countries have built their power system in isolation from each other Negligible volume of power trade; At the regional level there may be sufficient gas demand at competitive prices to warrant investment in a transnational pipeline transmission network; Some of the projects identified in the Gas Master Plan of Tanzania are only likely to be commercially viable if these investments are coordinated at a regional level; Cooperation at the regional level is often hampered by political economy constraints - Energy security issues; Implementation of regional initiatives usually slow and often only occurs when national interests of the most powerful countries within the region align;

8 Gender & Mining: features and constraints 7 Women at 27% of ASM labour force (carrying & crushing, processing, and support services) PMLs increasing but financial, procedural & cultural constraints (shemeji) informal pit sub-leasing ( revenue losses) ASM (female) miners not formally recognized Poor access to technology, skills, finance (Gvm-funded schemes) Informality trap Revenue losses + vulnerability + environmental/health risks

9 8 DTIS Action Matrix Priorities Extractives and Mining Identified Constraint Actions Responsibility Existing Initiatives Implement a transparent and predictable taxation Tanzania Revenue regime and revenue management system with Authority timely reimbursements The uncertainty of government reimbursements of duties and value added taxes constrains financial planning for EI companies Skill shortages, deficient access to finance & infrastructure hampering potential for local value addition along the EI value chain Unreliable access to power and financial sustainability of TANESCO Unclear local content regulations - Improve educational system - Provide vocational trainings - Scale up support programs to SMEs -Coordinate support initiatives with EI companies TANESCO restructuring to provide financial viability (already under implementation) Publish regulations that provide clarity and are consistent with each other Ministry of Education and Vocational Training, Ministry of Labour and Employment, MITI, Minerals, Ministry of Finance, Local Content Unit Minerals Minerals The WBG had a Tax Modernization Project in Tanzania from supporting the Tanzania Revenue Authority See main report - On-going restructuring process - The WBG is supporting this process through the Energy Sector Capacity Building Project Unaware of who helped the Government in drafting the Local Content Legislations or who is still supporting the local content regulatory framework.

10 9 DTIS Action Matrix Priorities Extractives and Mining Identified Constraint Actions Responsibility Existing Initiatives - Alignment of duties and tariffs Unaware of initiatives - Employment regulations that facilitate on the job addressing this training constraint Conflicting trade and local content policies (exemptions for EI companies on inputs while not extending these potential suppliers; export ban on Tanzanite while imposing tariffs on inputs needed to cut and polish Tanzanite, as well as tough labour laws that make it difficult to employ foreign trainers) Improve gas demand projections to prepare for the negotiations with the international oil companies on the domestic gas allocation Conflicting roles of State Owned Companies Slow formalization process of the ASM sector and lack of enforcement of rules frequent pit sub-leasing and tax evasion by small-scale miners - In-depth feasibility studies on the projects outlined in the Gas Master Plan, - Assess how much gas the international oil companies will require for export markets to move ahead with the proposed investments - Review state owned companies roles and responsibilities - Consider merging STAMICO and the mining entity in NDC - Separate out regulatory and commercial functions to the extent possible and fully clarify the roles of TPDC now that the functions are separated. - Put in place clear financial rules for State Owned Companies - Role out awareness raising campaigns - Reward formalization through support initiatives - Decentralize the enforcement authority to regional and district offices, and invest in staffing and capacity building for Zonal Mining Offices - As part of PML application process, introduce requirement such that successful applicants have to either enter into actual mining operations (without pit sub-leasing), or face license revocation. MITI, Ministry of Energy and Minerals, Ministry of Labour and Employment, Ministry of Industry and Trade, Local Content Unit Minerals, TPDC Minerals, Ministry of Industry and Trade Minerals, MITI, Tanzania Chamber of Mine, Tanzania Women Chamber of Commerce, Tanzania Women Miners Association (TAWOMA) - See Main report Natural Resource Charter Benchmarking Exercise currently being completed See Main Report

11 10 DTIS Action Matrix Priorities Extractives and Mining Identified Constraint Actions Responsibility Existing Initiatives - Introduce gender quotas for PMLs, and option for license acquisition by applicant groups Minerals, MITI, Tanzania - Introduce gender quotas for existing ASM Chamber of Mine, financing schemes, based on level of participation Tanzania Women in ASM Value Chain (miner, broker, dealer etc.) Chamber of Commerce, - Strengthen the capacity of the Gender Desk at Tanzania Women Miners Minerals (MEM), in areas Association (TAWOMA) such as gender mainstreaming in Trade & Minerals Policy, gender-disaggregated data collection, and gender-sensitive M&E. Access to PMLs and to finance is particularly limited for women in ASM Lack of regional coordination (to address Tanzanite smuggling, increase upstream linkage opportunities, lower the costs of power and other infrastructure projects, and avoid white elephant projects in downstream industries) Potential conflict between international agreements (WTO and bilateral investment treaties) and the local content/export restricting policies Lead regional coordination and integration efforts; - Review existing agreements - Take caution when signing new international investment agreements SADC, EAC, MITI, Minerals MITI, Ministry of Energy and Minerals, Local Content Unit, Ministry of Foreign Affairs and East Africa Cooperation - Africa Mineral Skills Initiative (AMSI) - Regional corridor projects (Mtwara corridor) - EAPP - SAPP Unaware of initiatives addressing this constraint

12 THANK YOU!