The ongoing reforms in Tanzania’s mining sector could lock foreign commercial banks out of the mining sector as new regulations require miners to use the financial services of local banks.
The Mining Regulations on Local Content (2018), which came into effect in January, require mining companies to have a bank account in a Tanzania-owned bank in the country.
The law defines a local bank as one that has 100 per cent Tanzanian or a majority Tanzanian shareholding.
The move is aimed at checking capital repatriation to miners’ countries of origin.
Experts say the new arrangement may require Tanzanian banks, which have foreigners as majority shareholders, to consider restructuring their shareholding in order to comply with the requirement and retain mining clients.
The regulation is expected to affect international banks like Barclays; Standard Chartered Plc; Stanbic Bank; First National Bank Tanzania Ltd — which is 100 per cent owned by the First Rand Group, a large financial services provider based in South Africa; KCB Bank, Commercial Bank of Africa and Access Bank Plc.
There are over 40 banks in the country.
Boon for local banks
Former chairman of the Tanzania Extractive Industry Transparency Initiative Multi-Stakeholders Working Group, Mark Bomani, said that during the review of the Mining Act companies had argued that local banks lacked the capacity to handle their accounts.
Economists have praised the new regulation as a boon for local banks.
Before the new rule was passed, mining firms were allowed to have bank accounts abroad and repatriate some of their profits — a move the government feels was weakening the local currency.
Calls for a change in the mining law were due in part to claims that mining firms were evading tax. The new structure seeks to establish even participation in mining activities by local entities including contractors, subcontractors, insurance companies and financial institutions.
To avoid fraudulent practices, the law imposes heavy penalties on those who fail to comply.
“A citizen who acts as a front or connives with a foreign citizen or company to deceive the Local Content Commission as representing a local Tanzanian company to achieve the local content requirement under these regulations, commits an offence and is liable on summary conviction to a fine of not less than Tsh100 million ($44,000) and not more than Tsh250 million ($110,000) or to a term of imprisonment of not less than one year and not more than five years or both,” says Section 49 (2) of the law.
Section (3) reads: “A person who connives with a citizen or a local Tanzanian company to deceive the Commission as representing a local Tanzanian company... commits an offence and is liable on summary conviction to a fine of not less than Tsh1 billion ($450,000) and not more than Tsh10 billion shillings ($4.5 million) or to a term of imprisonment of not less than five years and not more than 10 years or to both.”
Meanwhile, a team set up by the president to probe tanzanite mining has started negotiations with gemstone mining company Tanzanite One Mining Ltd to address setbacks affecting the sector.
The team was formed to ensure laws are followed and Tanzanians benefit from the natural resource, which is only found in Merelani Hills.
“We have started discussing ways to handle the different challenges affecting tanzanite business while also safeguarding Tanzanian’s interests,” said Palamagamba Kabudi, Tanzania’s Minister for Justice and Constitutional Affairs who is also a member of the team.
Faisal Juma Shahbhai, director of Sky Associates, owners of Tanzanite One Mining Ltd, said they support government efforts to ensure that the rare minerals benefit the country.
President John Magufuli has repeatedly voiced concern that Tanzanians do not benefit from their natural resources and has committed to gaining back control of the country’s extractive industry.
Mid last year, parliament fast-tracked three new laws that introduced extensive legal and regulatory changes to the country’s extractives industry.
They were the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Bill, 2017; the Natural Wealth and Resources (Permanent Sovereignty) Bill, 2017; and the Written Laws (Miscellaneous Amendments) Act, 2017.