November 19, 2017

Tanzania-Barrick deal: A template for fair mining agreements?

Tanzania’s President elect John Pombe Magufuli addresses members of the ruling Chama Cha Mapinduzi Party (CCM) at the party’s sub-head office on Lumumba road in Dar es Salaam, October 30, 2015. REUTERS/Sadi Said

President of Tanzania, John Magufuli, has been cited as an example on how countries can get more value from their natural resources by citizens of various resource-rich African countries.  Some wonder their own leaders have dismally failed to deliver,  whereas a ‘new  kid on the block’ is successfully making multinationals to revise the lopsided mining rights they offered and ensure Tanzania earns higher revenue and royalties.

Magufuli has successfully  negotiated for 50/50 benefit agreement between Tanzania and the mining company, Barrick Gold. The Toronto-based company will pay the government $300 million as part of the new deal, give the government a 16% stake in its mines, and  split “economic benefits” from the mining operations equally.

Tanzania’s new deal will now be more or less similar to Botswana’s diamond mining partnership with De Beers, where the government of Botswana earns 51% of the revenue from rough diamond exports. Through good husbandry,  Botswana channels the bulk of the proceeds to developmental initiatives like building transport infrastructure, health and education facilities.

Tanzania’s deal could compel some African countries to reconsider the binding deals that they signed with foreign mining companies decades ago, when they were desperate for foreign direct investment. Pitifully, some countries, under self-seeking leadership, signed binding deals that see them earning as measly as 5% of the revenue from their mineral resources, and have miss out benefiting from several commodities boom cycles.

Whilst cynics viewed Magufuli’s stance on mining rights as populist, he has achieved something that his peers have failed: clinching an equitable deal with an influential multinational. He has managed to re-position Tanzania’s mining industry to attract investors who will be involved in beatification and  contribute to economic development.

While it is still early days to predict the outcome of the deal between Tanzania and Barrick Gold, the recent agreement between Magufuli and Barrick Gold illustrates that it is possible for resource-rich countries in Africa and mining multinationals to collaborate . Of Course, this depends on both parties’ commitment.

 

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