Promoting Mineral Clusters: The Case of Tanzania - Africa Mining ...

Section One: Introduction1.1 Background and justificationTanzania’s mineral endowments are considerable. It has large reserves of non-fuel resources like gold,diamonds, coloured gemstones, nickel, tin to name a few. In the wake of the liberalization of the economy,the government has been heavily promoting private investment in the minerals sector. This has transformedthe minerals sector of the country into the fastest growing sector of the local economy.. From 1999 to2003, the value of output in the minerals sector grew by an average of nearly 15% per year, mainly becauseof substantial increases in gold production, a result of many projects coming on stream. During the sameperiod, the value of output in the construction and electricity/water sectors grew by an average of 10% and4% respectively. While giving a speech on the “State of the Economy” to the parliament in July 2007, theMinister for Planning reported that the mining sector contribution to the country’s GDP in 2006 was 3.8%which was an increase from 3.5% in 2005. The value of Tanzania’s mineral exports has risen substantiallysince 1999. Most of the increase is due to gold exports, which increased in value to US$504.1 million in 2003from US$ 374.3 million in 2002 and US$39.8 million in 1999. The share of total exports attributable tominerals rose to 48% in 2003 (44% gold and 4% other minerals such as diamonds and coloured gemstones)from 42.5% in 2002 and 13.5% in 1999. Tanzania’s minerals industry, particularly gold mining, is likely togrow substantially in the near future as a result of increased investment in new projects. Estimates are thatgold production would reach 59 t in 2005 and 61 t in 2007, with the potential to generate in excess of US$900 million of exports at prices of US$500/oz. This would represent more than 50% of the country’s totalexports.Notwithstanding the impressive growth of the minerals sector in Tanzania in the last 10 years, somestakeholders contend that the sector has failed to deliver the expected windfalls to the rest of the economy.Analysts criticize the depth and dearth of linkages between the minerals industry and other sectors of thelocal economy, in particular, its contribution to the development of local small and medium-scale enterprises.They argue that the minerals industry forms a capital-intensive enclave, foreign-owned, operated largely byexpatriates and using inputs (especially equipment) purchased abroad. They posit that large-scale foreignmining companies receive preferential treatment to the detriment of local artisan and small-scale miners, whofeel marginalized by a system, which is focussed on satisfying the needs of foreign investors.They also argue that the environmental and social impacts associated with mining, including planning formine closure and for a post-mining scenario have not been appropriately accounted for and addressed.Criticism has also been made to the process in which decisions on mineral projects have been taken, withlittle or no consultation of local communities who can potentially be negatively affected by the projects.They further contend that in many developing countries, abundance of mineral resources has led to regionalinequalities, creation of local pockets of poverty, corruption, conflicts, and wars of attrition.For the minerals industry in Tanzania to gain greater social acceptance and improve its development outcomes,there is a need to embrace an approach which promotes an equitable creation, investment, distributionand management of mineral wealth. This requires a conducive and competitive policy, legal and regulatoryenvironment and framework for business development; strong and capable institutions that promote goodgovernance and management systems; opening up opportunities for local participation; sharpening investmentdecisions; promoting linkages between the minerals sector and other sectors of the economy; empowering1