What you gain on the swings: The commercial impact of the Magufuli presidency

Tanzanian President John Pombe Magufuli’s robust approach to both anti-corruption initiatives and plans to accelerate economic development in the country were initially met with high praise from foreign investors. Nicknamed ‘the Bulldozer’, President Magufuli began his presidential term in October 2015 determined to deliver on campaign promises of government efficiency and transparency. Such campaign promises from the candidate representing the long-serving Chama Cha Mapinduzi (CCM) party, which has dominated Tanzanian politics since multiparty elections were reintroduced in 1992, were refreshing. However, now, in his second year at the helm, President Magufuli’s centralised and hasty tactics have led to an uncertain commercial environment that has investors wavering. Tanzania’s mining sector has come into President Magufuli’s crosshairs as he comes to loggerheads with foreign mining firms in his pursuit of long-term development.

On 2 March 2017, President Magufuli abruptly announced by decree a ban on Tanzanian mineral concentrate and metallic ore exports. Touted as a bid to increase domestic beneficiation, the move was followed in June by the tabling and subsequent passage of three bills proposing amendments to regulations in the extractive sector: the Natural Wealth and Resources Contract (Recognition of Unconscionable Terms) Bill, the Natural Wealth and Resources (Permanent Sovereignty) Bill and the Written Laws (Miscellaneous Amendments) Act. The new legislation means that the government can now dissolve existing mining contracts if terms are deemed “unconscionable”, and it can increase mining royalties. Furthermore, the legislation bans firms from approaching foreign courts in commercial disputes and it compels domestic mineral processing. President Magufuli is also seeking to review all existing Mining Development Agreements in a pending threat to contract security. These rapid developments, undertaken with very little consultation in the mining sector, have led to widespread concerns over policy and contract certainty in Tanzania. Furthermore, President Magufuli launched parallel investigations into claims that foreign mining companies were understating the value of exports in order to avoid taxes. Although the findings of the investigation have been damning for the mining firms, industry experts have cautioned that the findings could have been influenced by the worsening impasse between the incumbent and foreign mining firms. 

Yet Magufuli’s actions are not merely a means to an end. Tanzania’s economic development plan, anchored on the National Development Vision 2025, is dependent on meeting a highly ambitious tax revenue target. Leveraging muted tax resources in the mining sector will be a useful bump in accessible income. However, the administration’s goals extend far beyond this short-term engagement. Achieving beneficiation and processing raw materials for export domestically will encourage job creation and skills transfer, thus increasing benefits from the extractive sector within wider plans for Tanzania to achieve middle-income status by 2025. The export ban and accompanying legislation will be useful tools in President Magufuli’s arsenal to accelerate efforts to increase the government’s share of revenues from the extractive sector, and to ensure greater local content provisions and employment. Current and future investors should therefore prepare to nurture local capacity-building initiatives and work closely with key stakeholders in the country. Yet this development plan is contingent on the continuation of mining revenues, and President Magufuli’s administration will need to be mindful not to push back too hard on investors. Already, in his 2017/2018 budgetary address, Minister for Finance and Planning, Dr. Philip Mpango, acknowledged the need to address diminishing confidence in the private sector, highlighting “that the Fifth Phase Government strongly believes that the private sector is an engine of the economy”. This approach is likely to tie in with plans to increase the mining sector’s contribution to gross domestic product from 4% to 10% by 2025, achievable through an expansion of the sector rather than its capture. In this regard, it is not in the government’s long-term interests to jeopardise short-term investor confidence. 

At present, the mining sector, the oil and gas industry and agriculture continue to attract the most foreign direct investment (FDI) and a development agenda aimed at addressing energy and infrastructure deficits will also bring new opportunities in Tanzania. Investors are still encouraged by Tanzania’s plans to construct a large export port at Bagamoyo, to launch an oil export pipeline with neighbouring Uganda, and by the 2016 discovery of a large helium gas field in the country. In this regard, the country remains an attractive FDI destination. 

Nevertheless, President Magufuli’s hands-on approach and populist rhetoric is worrisome. President Magufuli has already adopted a micromanagement approach in his anti-corruption initiatives, centred on individual retribution rather than institution building and repair. It is likely that President Magufuli will seek to mimic these efforts as he tackles the mining sector, ensuring that he is at the forefront of overhauling the industry. Dr Mpango, among others, has already offered conciliatory statements to investors to counteract concerns over President Magufuli’s haste, but an increasingly centralised government under the President will be worth monitoring. A centralised approach is likely to facilitate additional ad hoc policy changes, which will further test the resolve of investors. It is clear that President Magufuli has few holds barred for his industrialisation and development agenda for Tanzania. While opportunities remain available in the East African country, foreign mining firms and future investors will need to take a measured approach in their engagement with the Bulldozer’s government.