Investment Contracts: What Tanzania Might Learn From Twiga Minerals Corporation?

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Once it’s been born, it only takes a giraffe about half an hour to stand up and start running after just 10 hours. As a nation, we have much to learn from this vast African hoofed mammal. In Tanzania, Twiga, a Swahili name for giraffes, is not just the tallest living terrestrial animal and the largest ruminant on earth; it is a national symbol. But this is about the story of Twiga Minerals Corporation.

This time around its namesake, Twiga Mineral Cooperation extends its height out of crowd as an exemplary way of escaping resource curse in Africa. The resource curse refers to a situation whereby a country has an export-driven natural resources sector that generates large revenues for government but leads paradoxically to economic stagnation; it is commonly used to describe the negative development outcomes associated with non-renewable extractive resources (petroleum and other minerals).

Like the rest of Africa, Tanzania has vast natural resources, productive land, and valuable natural resources, including renewable resources (water, forestry, fisheries) and non-renewable resources (minerals, coal, gas, and oil). Natural resources dominate the national economy and are central to the livelihoods of the poor rural majority. These resources are the basis of income and subsistence for large segments of Africa’s population and constitute a principal source of public revenue and national wealth.

However, there has been a constant outcry about why African wealth is not making Africa wealthy. Approximately half of the world’s gold supply, two-thirds of the world’s manganese and chromium, and two-thirds of the world’s diamond reserves are in Africa. The continent is also home to many fossil fuels and minerals. This has been attributed to poor negotiation skills, bad governance, corruption, and mismanagement.

It wasn’t until 2009 when Twiga the mineral cooperation emerged to assume its namesake uniqueness and advantage of height, to browse on leaves and buds in treetops that few other animals can reach, by lifting the resource curse and contributing to positively change the fate of Tanzanian economy by kindling significantly the economic growth and healthy being of her people.

In a preamble of the book Escaping Resource Curse, a Hungarian-American businessperson and philanthropist, George Soros, describes the resource curse as the failure of resource-rich countries to benefit from their natural wealth.

Tanzania is one of the resource-rich countries in Africa. It has set a model of how resource-rich countries can negotiate better deals, lift the resource curse, and ultimately change the economy of their nations by making the industry contribute considerably to economic growth.

In October 2019, Barrick Gold reached an agreement to settle all disputes between the Tanzania government and the mining companies formerly operated by Acacia, which Barrick now manages.

The terms of the agreement included the payment of $300 million to settle all outstanding tax and other disputes, the lifting of the concentrate export ban, the sharing of future economic benefits from the mines on a 50/50 basis, and the establishment of a unique, Africa-focused international dispute resolution framework.

In conjunction with the finalization of the agreement, a new operating company, Twiga Minerals Corporation was formed to manage the Bulyanhulu, North Mara and Buzwagi mines. The Tanzanian government acquired a free carried shareholding of 16% in each of the mines and has since been receiving its half of the economic benefits from taxes, royalties, clearing fees and participation in all cash distributions made by the mines and Twiga Minerals Corporation. An annual true-up mechanism will ensure the maintenance of the 50/50 split.

Since its establishment, Twiga Minerals Corporation has demonstrated the value-creating capacity of a true partnership between a mining company and its host nation, reflecting the government’s anticipation of improving the investment climate and embracing partnerships with the world’s largest miners, among other measures that seek to achieve its determination to almost double the contribution of the mining sector to the economy.

Since the agreement date, Barrick has pumped $2.4 billion into the Tanzanian economy. Last year, it paid $303 million in taxes, royalties, levies, dividends, shareholder loan repayments, and $476 million to local suppliers. The workforce in all mines is made of 96% Tanzanian, with 45% of new hires drawn from the surrounding communities.

Through their community development committees, the mines have invested over $10 million in projects to improve healthcare, education, access to potable water, and road infrastructure.

“The fact that so much value has been delivered in such a short time is a tribute to the power of what I believe is the first partnership of its kind in Africa. With the framework agreement fully implemented, we have settled most landowner disputes. We are on our way to fully comply with our environmental permits and the government’s local content legislation,” says Mark Bristow Barrick’s President and CEO.

Local Content Factor

To ensure that Tanzanians benefit from the mining supply chain, the government, through the Mining (Local Content) Regulations of 2018, imposed the local content requirements introduced by the Mining Act No. 7 of 2017, which amended the Mining Act, 2010. On 08th February 2019, the Ministry of Minerals published the Local Regulations 2019.

The Regulations aim to develop local skills to build a skilled workforce and a competitive supplier force in the mining sector. The regulations forbid providing services by an international service provider to mining setups in Tanzania if the same does not feature at least a 20% equity stake owned by Tanzanians.

For a non-indigenous company to provide goods or services to a contractor or licensee in Tanzania, it will be required to form a joint venture company with an indigenous Tanzanian company after affording such company an equity participation of at least 20%. It does not limit applicability to certain types of services; it applies to all types and sizes across the industry.

This has led to the emergency of many young entrepreneurs; “Without this, I couldn’t be owning this company. Barrick North Mara nurtured me through local content to this stage,” says Rhobi Gibai, who, at the tender age of 33, runs multimillion construction company registered under level 6 with Contractors Registration Board.

She says her company started with a capital of Tshs. Three million ($1,300) by cleaning dumpers, “In a very short time, through Barrick special entrepreneurship training, I was able to grow my business fast to the extent that now I own modern construction machines and employed 15 permanent employees and close to hundred part-time employees depending on the nature of the contract we have at that particular time,” she says.

The mining sector’s contribution to the nation’s gross domestic product (GDP) increased from 3.4 percent in 2015 to 5.2 percent in 2019. Now, the industry contributes 7.3 percent.

Nevertheless, President Samia wants to improve the economic contribution of the mining sector to at least 10 percent of the GDP by 2025.

“The sixth phase government intends to accelerate this success by enforcing the Mining Act of 2017, continuing to control smuggling and remove investment barriers to attract and facilitate government negotiations and ultimately enter into partnerships with the world’s largest miners,” she told the Parliament in the inaugural speech in 2021.

Earlier this year, the company affirmed its pledge of $30 million in partnership with the Tanzanian government towards the expansion of education infrastructure in Tanzania through ‘The Barrick-Twiga Future Forward Education Program’’ to build 1,090 classrooms, 1,640 ablution blocks and 270 dormitories across 161 schools nationwide, helping to accommodate approximately 49,000 of the estimated 190,000 students who are expected to start their A-levels in July this year. The first $10 million was paid in April, and the balance will be rolled out with the program.

According to Bristow North Mara has already spent $1.9 million (Tshs 4.5 billion) on 87 primary and secondary schools in the Tarime District, 14 of which are the best performing schools in the district. Bulyanhulu has spent $1.8 million (Tshs 4.2 billion) on 80 educational projects around the mine and is currently building a Vocational Education Training College Centre in Bunango Village. Barrick’s investment around the mine has given 7,557 Tanzanian girls access to education in 2022.

“Besides the company’s education support, North Mara was officially recognized as Tanzania’s largest taxpayer last year. The National Social Security Fund awarded Bulyanhulu the Best Compliant Employer prize. North Mara and Bulyanhulu also received the first and runner-up recognition awards, respectively, for exporting minerals and generating foreign currency.

“They’ve (North Mara and Bulyanhulu) both come a long way, and we look forward to continuing that journey through our Twiga partnership with the government,” Bristow said,

In May 2022, Barrick announced it would spend 6 dollars for every ounce of gold sold by its two mines, North Mara and Bulyanhulu, on improving healthcare, education, infrastructure, and access to potable water in the communities around them.

At the same time, it committed up to 70 million dollars for investment in value-adding national projects, including mining-related training, skills development, scientific facilities at Tanzanian universities, and road infrastructure.

Since Barrick formed a joint venture with the Tanzania Government to form Twiga Minerals Corporation, the then dilapidated North Mara and Bulyanhulu have been revived, returned to profitability, and are now genuinely world-class assets, with the potential to join Barrick’s Tier One gold complex family, and become the seventh in the company Tier one family tree. It has also made significant progress in dealing with legacy social and environmental issues and is returning substantial value to its Tanzanian stakeholders.

The Twiga Minerals Corporation joint venture enabled the ecologically friendly closure of Buzwagi Mine in 2021. At its peak, Buzwagi was Tanzania’s second-largest operating mine, employing more than 3,000 people.

Barrick sees that Buzwagi remains an economic powerhouse for local communities and Tanzania. It’s looking into establishing the Buzwagi Special Economic Zone (BSEZ).

The BSEZ will aim to turn Buzwagi’s mining area into a business area to generate similar benefits the mine provided to the local municipality and its surrounding communities through taxes, fees, and new employment opportunities.

The feasibility study for the BSEZ showed it has the potential to create approximately 3,200 jobs per year, generate more than 150,000 dollars per year in service levies for the local municipality over the short term, and as much as $1.3 million in the long time and generate Pay As You Earn (PAYE) taxes for the Tanzanian government of as much as $ 4.5 million over the short term and more than $18 million over the long time.

All these indicate but only one thing: the time to keep pointing fingers at investors is an old-fashioned thing of the past. The Twiga Minerals Corporation manifests our ability to negotiate and serve the better interest of both Wananchi and investors.