Tanzania plans to work the largest nickel deposit

Two fishermen row in front of the Marshall Islands-flagged oil tanker "Miracle" after it ran aground in the mouth of Dar Es Salaam harbor on February 13, 2016.
Political article
The Tanzanian Government has signed an agreement on nickel mining with a British corporation under which profits will be split equally. State interventions can also be observed in neighbouring Zambia.

In the light of the setting sun, the ferry from Zanzibar chugs its way into the port of Dar es Salaam, Tanzania’s economic metropolis. The skyscrapers of the Kisutu and Geresani business districts can be made out behind the cathedral's bell tower – in a city known as the "House of peace" since its naming by the Sultan of Zanzibar in 1866. On the opposite side, fisherfolk are embarking on what will be a long and strenuous night on the Indian Ocean.

The plan is to expand the city's harbour into the largest in Central and East Africa so that it outshines even Durban in South Africa. Tanzania's geographic location is unique. The country offers the most direct access to the sea for the six landlocked countries of Uganda, the Democratic Republic of the Congo, Rwanda, Burundi, Zambia and Malawi. The expansion is progressing rapidly and huge cargo vessels will soon be able to dock here. According to the Daily News, one of Tanzanian's two English-speaking dailies, work on the expansion of seven berths by the China Harbour Engineering Company is already 90-per cent complete. Besides, with the participation of an Omani investment fund, China is also building a large port in Bagamoyo, the former capital city of German East Africa.

Commodity trans-shipment hub

The volume of minerals mined in Tanzania is set to increase substantially, and they are to be exported from this harbour. On 19 January the government signed an agreement with the British corporation Kabanga Nickel on the working of the world's largest deposit of the mineral, used chiefly in the automotive industry and in batteries. Some local observers are enthusiastic and even credit Tanzanian with holding the key to a low carbon world economy.

The joint venture, called Tembo Nickel Corporation, has committed to extracting nickel and building a refinery for smelting it locally. This approach is in keeping with Tanzanian's policy of refining minerals instead of exporting them in the rough. With an 84-per cent stake in the new company, Kabanga Nickel is the majority shareholder, while the remaining 16 per cent belongs to the government. This reflects the usual pattern of Tanzanian participation in mining projects. The country hopes to generate USD 664 million from the project. Profits will be shared equally between the government and the British corporation.

An interesting twist: the mining rights had previously belonged to the Swiss corporation Glencore and Canada’s Barrick Gold; in 2018, however, President John Magufuli (died on March 17th officially of a heart disease) cancelled the mining licences of the two companies and of 10 other investors in the country following the amendment of Tanzania’s tax regime and mining legislation such that a larger share of revenue would accrue to the State.

Long-term plans for local battery production

Tanzania is also hoping to attract investors for the local manufacture of batteries. All earnings from the mining project are to remain in Tanzanian banks; measures are to be brought in to restrict the outflow of funds. Mining accounts for 3.5 per cent of the gross national income of Tanzania, Africa's third largest gold producer. The government plans to increase this share to 10 per cent by 2025.

Promoting foreign and domestic investment is at the core of the development strategy of the government, whose aim is to achieve eight per cent annual growth and create 8 million jobs in the formal and informal sectors by 2025. The country is keen to press ahead with its industrialisation. In the January 4 edition of The Citizen, Kitila Mkumbo, Minister of State in the President’s Office (Investment), reiterated "the commitment of the Government of Tanzania to improving the business and investment climate for attracting, retaining and sustaining foreign and domestic investments. The basis of this is the Blueprint for Regulatory Reforms to Improve the Business Environment in Tanzania. The Blueprint aims to eliminate overregulation without weakening government control. A one-stop centre is also to be created to speed up and reduce the cost of investment. Furthermore, Tanzania is keen to improve its ranking in the World Bank's Doing Business Report (currently 141 of 190); Alliance Sud has recently been critical of the system, whereby the more a country deregulates at the expense of workers’ rights and environmental protection, the better its ranking will be.

Villagers compensated in Zambia

Commodities from neighbouring countries are also trans-shipped via the port of Dar es Salaam, principally from Zambia as a leading copper-exporting country. We have had some interesting news from that country: on 19 January the British mining giant Vedanta announced its readiness to pay compensation to 2500 villagers in the wake of a ground-breaking decision by the United Kingdom’s Supreme Court allowing the villagers to file an action with British courts over environmental pollution caused by the Vedanta's Indian subsidiary Konkola. This possibility would also have been created in Switzerland had the Responsible Business Initiative been accepted.

Is that not good news? "Out-of-court settlements are always ambivalent", says Rita Kesselring, social anthropologist at the University of Basel and expert on mining issues in Africa: "On the one hand they provide welcome remedy for the plaintiffs, in this case poor families whose livelihoods were partly destroyed by the damage caused by the Konkola mine. On the other, these settlements prevent the setting of an important legal precedent in connection with injustices caused by companies."

Mix of nationalisation and part-privatisation

The Zambian Government recently closed down the mine "as a precaution", the reason being that Konkola was not operating it properly (also substantiated by the class action before the British courts).

The government then split the company and sold off 49 per cent of the smelters to one investor. "What we're seeing here is a kind of 'nationalisation' combined with 'part-privatisation'. Something similar happened in mid-January with the Mopani mine, though in that case the government bought the mine with a loan obtained from Glencore. The Zambian Government is keen to expand its role in the country’s mining industry; the examples of Konkola and Mopani may offer clues as to the form this could take. There are some interesting parallels with Tanzania", adds Rita Kesselring.

The academic sees this as a very promising development, the feasibility of which nonetheless depends on a series of factors about which we currently know little. Who, for instance, is responsible for removing the pollution caused by these mines over the past 20 years? Both Konkola and Mopani have very poor records in this regard, as has been confirmed in the case of Mopani even in a Zambian court.

The question of the social accountability of companies therefore remains unanswered.

Investment in Tanzania

According to the UNCTAD World Investment Report 2020, Tanzania is among the top 10 countries in Africa by volume of foreign direct investment. In 2019 the country attracted investments worth USD 1.1 billion. UNCTAD estimates that foreign direct investment to Sub-Saharan Africa contracted by 11 per cent in 2020 because of Covid. This contraction is below the world average, however. Investments in industrialised countries plummeted by 69 per cent over the same period. In Tanzania the bulk of foreign capital goes into the mining, oil, gas and agriculture sectors. The largest investor is China, followed by India and Kenya. In 2017 the Tanzanian Government enacted new mining industry legislation empowering the State to renegotiate contracts, partly nationalise companies, set higher licence fees, increase local value-added and introduce performance requirements (an undertaking to employ local workers, for example). It was a risky gambit with the potential to scare off investors, but which ultimately paid off in the case of the British company Kabanga Nickel.

First ever strategy for Sub-Saharan Africa

Under the new International Cooperation Strategy 2021-2024, the Federal Department of Foreign Affairs (FDFA) is now focusing its activities more strongly on Africa. In January the Federal Council adopted its first-ever strategy for Sub-Saharan Africa. It places the emphasis, among other things, on economic development: promoting competitiveness, framework conditions for the private sector and the labour market, including vocational training, as well as access to financial services and regional and global value chains. In its dispatch the Federal Council underlined that the African market offers long-term potential for Swiss companies. Over the next four years, 40 per cent of FDFA funds, or some CHF 2650 million, will go into bilateral cooperation. Sixty per cent of that amount will go to Sub-Saharan Africa.

Alliance Sud is urging Switzerland to prioritise inclusive local economic development in Africa rather than the interests of its corporations. In addition, efforts must be made to combat tax flight towards Switzerland's financial centre. In particular, Switzerland must support the equitable sharing of mining profits and ensure that the reports to be submitted by Swiss companies for the purposes of the counter-proposal to the Responsible Business Initiative are objective and credible.