Monday, March 31, 2008

How can we escape the resource curse?

It is no a longer a conspiracy theory. We can no longer simply wish it away. Within the next 10 years 3 of the country’s large scale gold mines will close. However, Tanzania is not yet set to benefit significantly from these mines. Why are we in such a gloomy state?

We once observed a former chief economist and senior vice-president of the World Bank turning into a critic of International Financial Institutions (IFIs). We noted his confession that at the World Bank he “saw that decisions were often made because of ideology and politics. As a result many wrong-headed actions were taken, ones that did not solve the problems at hand but that fit with the interests or beliefs of the people in power.”

Let us revisit his confession with respect to a recent report on ‘A Golden Opportunity? How Tanzania is failing to benefit from Gold Mining.’ The report reminds us that it is the 1989 and 1992 World Bank papers on the mining sector that “called for Tanzania to develop private investment in mining and attract foreign capital.”

This courtesy call to liberalize was not enough to change our ‘mindset’. We had to be structurally adjusted. Hence the World Bank went ahead to fund a Mineral Sector Development Technical Assistance Project in 1994. This intended to promote fiscal reforms that will make that neoliberal call a reality.

The full realization of such a call had been delayed for over half a century. Not least because of a nationalist leader who thought it is the state, not the market, which should control mines. Before we won independence in 1961 he even trusted the ‘social welfare of the colonial state than the ‘corporate social responsibility’ of private multinationals.

His 1946 call attest to this relative trust: “We want all the chief resources of this country such as gold, coal, diamond and tin mines to be developed by the government and the money used for education and general development.” This alternative call became almost a reality in 1967 when he declared the Arusha Declaration.

Nationalization of foreign capital became the order of the day. This move drastically curtailed the development of the private sector in mining. However, 10 years afterwards it re-emerged in the context of a severe economic crisis. In dealing with this crisis the government went as far as to produce a manual for attracting investors in 1980.

The IMF/World Bank chipped in with structural adjustment programs. The nationalist leader refused to adjust. Then he tried to adjust in ‘our’ own terms. But at the end of the day IFIs had an upper hand. Our diehard nationalist couldn’t take it anymore. He retired as our President and CCM chairperson in 1985 and 1987 respectively. Butiama beckoned.

When his successors issued the Zanzibar Declaration in 1991 they officially crowned the reign of the private sector through IFIs. No wonder the World Bank started working effectively on this then long overdue call for private investment in mining. By 1997 a mineral sector policy was in place. It reduced the role of our government to that of a ‘regulator’. As such it emphasized the primary role of private companies.

One of the outcomes of this initiative was the controversial Mining Act of 1998. As the authors of the above cited report notes, the initiative created a new tax and mining regime that favors foreign investors at our expense. They note that this regime offers a raft of tax incentives that amounts to hidden subsidies for the foreign mining companies.

These include “low royalties rates (3 percent on gold exports), low taxes on imports of mining equipment, the ability to employ an unlimited number of foreign nationals, and the ability of companies to carry forward losses and offset these against tax.” Moreover, “the government takes no stake in gold mining operations, allowing foreign companies 100 percent ownership.” No wonder they can ‘sell’ our mineral rights to other companies.

Incidentally, the above cited former vice-president of the World Bank started working at the World Bank in 1997 and left in 2000. One wonders whether he viewed the moves to steer Tanzania toward private investment in mining as what he now terms “wrong-headed actions.” Perhaps he did for he is now busy instructing us how to undo these actions.

Ironically, he has now co-edited a book entitled ‘Escaping the Resource Curse.’ It defines the terms resource curse as the failure of resource-rich countries to benefit from their natural wealth. This happens when resources are extracted at the expense of the citizenry.

Interestingly, his chapter therein is entitled ‘What is the role of the State?’ It criticizes the timing and manner of privatization. For instance, privatization has often “occurred before institutions that can collect tax and enforce contract are in place.”

Intuitively, he recommends 3 principles to guide governments in lifting the resource curse unleashed by privatization: “Transparency: Open and transparent agreements, openly arrived at”; “Ownership: The developing country should remain the ultimate owner of the natural resource”; “Fairness: Natural resource rents belong to the country; foreign…companies should get only a fair rate of return, adjusted for the risks they face.”

What we can we learn from our stint with the ‘World Bank-inspired privatization’ of our mining sector? Do we need the confessions of ‘economic hit men’ to know we have been taken for a ‘mining ride’? Shall we wait for diviners to tell us a resource curse is upon us?

Let us reconsider the evidence. The wailing of our degraded environment speaks volumes. 600 meters ‘black holes’ bear witness. 400, 000 small-scale miners who are now jobless testify. 3 percent royalties makes government coffers tinkle like empty tins.

Could it be that the evidence at hand is a blessing in disguise? Isn’t this a golden opportunity to start escaping from this resource curse before it is too late? Would the presidential committee on reviewing mining contracts seize this golden moment?

Author: Chambi Chachage
Source: The Citizen 21 March 2008


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