Tanzania mining investment attractiveness deteriorates

10May 2018
The Guardian
Tanzania mining investment attractiveness deteriorates

Tanzania has dropped in the new Investment Attractiveness Index (IAI) ranking by the Fraser Institute of Canada, dropping 19 places from the position it held globally in 2016 to 78th last year.

The Canadian public policy think tank and registered charity ranks it 12th out of the 15 African countries involved in the survey conducted between August 22 and November 10, 2017.

Mining executives in the country who participated in the Fraser Institute Annual Survey of Mining Companies pointed out a number of factors behind deterioration of the local mining investment attractiveness, notably recent legislative changes which they said are being retrospectively applied. Most of them also decried excessive and random taxation.

According to the Annual Survey of Mining Companies: 2017, published on February 22, 2018, the top jurisdiction in the world for investment based on the IAI is Finland. Guatemala ranks as the least attractive jurisdiction in the world for investment with Kenya also among the bottom 10.

“The Investment Attractiveness Index takes both mineral and policy perception into consideration,” Fraser Institute said in a statement.

“An overall Investment Attractiveness Index is constructed by combining the Best Practices Mineral Potential index, which rates regions based on their geologic attractiveness, and the Policy Perception Index, a composite index that measures the effects of government policy on attitudes toward exploration investment,” the institute explains.

“While it is useful to measure the attractiveness of a jurisdiction based on policy factors such as onerous regulations, taxation levels, the quality of infrastructure, and the other policy related questions that respondents answered, the Policy Perception Index alone does not recognize the fact that investment decisions are often sizably based on the pure mineral potential of a jurisdiction. Indeed, respondents consistently indicate that approximately 40 per cent of their investment decision is determined by policy factors,” it adds,

The survey is an attempt to assess how mineral endowments and public policy factors such as taxation and regulatory uncertainty affect exploration investment.

Tanzania’s score and rank deteriorated in 2017, dropping from 59th (of 104) in 2016 to 78th (of 91). The survey was sent to approximately 2,700 exploration, development, and other mining-related companies around the world.

Those that participated reported exploration spending of US$2.3 billion in 2017 and US$1.9 billion in 2016. This year miners expressed increased concern over uncertainty regarding the administration, interpretation, or enforcement of existing regulations (+55 points), trade barriers (+50 points), and security (+47 points).

Out of 15 African countries surveyed, Tanzania ranks behind Ghana, Mali, Botswana, South Africa, DRC, Namibia, Zambia, Morocco, Zimbabwe, Burkina Faso, and Ivory Coast, and just before Ethiopia, Mozambique, and Kenya. In particular, four African countries —Democratic Republic of Congo (DRC), Ivory Coast, Tanzania, and Zambia— experienced declines in their Policy Perception Index (PPI) scores of over 20 points.

In the survey, a manager of a local mining company said that “legislative changes in Tanzania, which are being retrospectively applied, undermine the sanctity of contracts and remove recourse for international arbitration to resolve disputes with the government. This creates uncertainty and instability and makes for a particularly hostile investment environment.”

A senior management of an exploration company noted that taxation is excessive and random. In the 1990s, Tanzania’s mining laws were relaxed to encourage foreign investments, resulting in international mining companies opening up large-scale mining operations.

However, in 2017 the government passed a series of bills aimed at increasing revenue from minerals explorations and export, including higher taxes on mineral exports and allowing the government to have a higher stake in some mining operations.

“While geologic and economic considerations are important factors in mineral exploration, a region’s policy climate is also an important investment consideration. The Policy Perception Index (PPI) is a composite index that measures the overall policy attractiveness of the 91 jurisdictions in the survey,” reads the statement.

“The index is composed of survey responses to policy factors that affect investment decisions. Policy factors examined include uncertainty concerning the administration of current regulations, environmental regulations, regulatory duplication, the legal system and taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socioeconomic and community development conditions, trade barriers, political stability, labour regulations, quality of the geological database, security, and labour and skills availability.”

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