Michael Strain of Bowmans argues that Tanzania is on the cusp of an exciting new mining era.
The story of mining in Tanzania unfolds like an ancient tale, when traders tapped into the land’s hidden wealth, extracting gold, copper, iron, and salt – essentials of commerce and daily life centuries ago. They established vital trade networks with distant markets, while bustling bazaars brimmed locally, shaping the country’s early economic and cultural landscape.
This period marked the beginning of Tanzania’s deep-rooted connection with its natural resources, a legacy that echoes through its current economic framework.
Today, Tanzania stands at the threshold of a new chapter in its mining narrative. The sector’s contribution to national GDP has steadily increased, rising to 7.2% in 2020/2021 from 6.7% in the previous year.
This growth is further reflected in the mining-driven expansion of non-traditional goods exports, particularly gold and coal. Between August 2022 and August 2023, Tanzania’s gold exports alone reached USD 2.95 billion, comprising a significant portion (39%) of total export value, while coal exports skyrocketed to USD 227 million from USD 82 million in the same period.
These gains can be attributed to recent government policies which are strategically harnessing the nation’s mineral wealth, aimed not only at attracting investments but also in transforming local communities.
This shift towards more inclusive economic development is centred on creating job opportunities and developing critical skills, in the hope that the benefits of mining extend beyond profits to foster sustainable growth and improved livelihoods for Tanzanians while maintaining a business-friendly environment.
For instance, amendments to the Mining Act have increased penalties for non-compliance with the requirement to promote ethical mining practices; introduced a ‘primary processing licence’ which provides regulatory oversight for formal operations like ball mill activities or sluicing; and established a tender system for mineral rights applications which will potentially reduce the risk of corruption and ensure fairer distribution of resources.
The Act now also stipulates that mining operations must commence within six months from the licence’s granting – a requirement designed to prevent speculative holding of mining rights and ensure the active utilisation of resources – and refines the process for acquiring prospecting licences by introducing specific criteria and restrictions for their granting and renewal.
While these legislative changes do offer benefits, they can present challenges too.
Concerns remain in relation to section 56 of the Income Tax Act and the corresponding ‘change in control’ rules which can inadvertently deem a transaction as a disposal when there is more than a 50% change in shareholding. Additionally, there are ongoing debates regarding income calculation, especially concerning the disallowance of certain costs.
Notably, the prohibition of royalty payments as deductible expenses, a change enacted in July 2023, has raised concerns within the mining sector, as these are essential business costs. Another area of contention is the treatment of corporate social responsibility (CSR) costs, which, despite being a legal obligation since 2017, are viewed by the revenue authority as non-deductible voluntary contributions.
Despite these challenges, investors remain eagle-eyed on Tanzania’s mining sector. Last year, for example, the government signed significant agreements with three Australian companies: Peak Rare Earths, Evolution Energy Minerals, and Ecograf.
These agreements, worth USD 667 million, are focused on mining rare earth minerals and graphite through major developments like the Ngualla Project by Peak Rare Earths for bastnaesite mining in Songwe, the Chilalo Graphite Project by Evolution Energy Minerals, and the Epanko Graphite Project by EcoGraf – each aiming to contribute significantly to the country’s economic growth and job creation.
American car giant Tesla also recently inked a contract to buy anode active material (AAM) from Tanzania, through battery-producer Magnis Energy Technologies, and its Tanzanian subsidiaries Uranex Tanzania and Magnis Technologies Tanzania (MTT).
Tesla is expected to purchase between 17,500 and 35,000 tons of AAM annually from 2025. Investors are also increasingly looking beyond traditional extractive practices, seeking opportunities that align with sustainable and non-extractive models in mining. This shift reflects a broader global trend towards responsible and sustainable resource management.
One prominent area attracting attention is the development of value-added processing facilities within Tanzania. Instead of exporting raw materials, these facilities focus on processing minerals locally, adding value before they reach global markets – a priority for Tanzania’s government.
Investors are also increasingly prioritising the exploration through geoscientific surveys to uncover the country’s mineral potential. The allure of exploration lies in discovering new deposits of high-demand minerals like rare earth elements, graphite, and gold, crucial for the burgeoning global green technology market.
Tanzania’s goal to raise its mining sector’s GDP contribution to 10% by 2025 is clear indicator that the government sees the industry as a route to growth, and it will have been encouraged by the initial progress it has made.
The key to sustaining and amplifying this growth lies in a triad of factors: continued regulatory refinement, investment in advanced mining technologies, and a steadfast commitment to sustainable practices. Given the current momentum around these factors, Tanzania has an opportunity to get ahead in Africa’s mining-driven economic market.
Michael Strain is the managing partner of Bowmans in Tanzania
africanlawbusiness.com
