Tanzania’s mining sector has experienced remarkable growth, doubling its contribution to the economy over the past two decades. This growth can largely be attributed to the mineral policy reforms initiated in 1997, which have led to over $3.0 billion in investments in the sector. Today, the country boasts eight large-scale mines and numerous small-scale operations, positioning mining as a vital source of foreign exchange, employment, and government revenue. For instance, from 1997 to 2023, mineral export earnings surged from 1% to 52% of the total export value, illustrating its substantial impact on the country’s GDP.
By March 2024, the Ministry of Minerals reported that the sector had created approximately 19,356 jobs in large-scale mining, with 97% of these positions—18,853 jobs—filled by Tanzanians, while only 505 positions were occupied by foreign workers. This is a positive indicator of the sector’s contribution to national employment.
However, despite these impressive figures, Tanzania continues to face significant challenges from illicit financial flows (IFFs), which are undermining the mining sector’s potential.
Illicit Financial Flows (IFFs) refer to the cross-border movement of illegally earned, transferred, or utilized financial capital. These illicit flows deprive nations of vital resources, hinder economic development, and directly impact the well-being of citizens. In Tanzania, IFFs occur through various illegal activities, including trade misinvoicing, smuggling, and corruption, all of which contribute to substantial revenue losses and hinder the country’s growth.
How IFFs Operate in Tanzania’s Mining Sector
One of the most prevalent forms of IFFs in Tanzania’s mining sector is trade misinvoicing. In this method, companies either undervalue their exports or overstate the cost of their imports in order to evade taxes. This is common in the mining industry, where mineral values are frequently manipulated to avoid proper taxation.
Another major issue is smuggling where minerals are illegally extracted and transported outside official channels leading to unreported sales and lost government revenue. For example, in a recent case, authorities seized 15.78 kilograms of gold, valued at approximately 3.4 billion Tanzanian shillings, which had been smuggled through Dar es Salaam Port.
Additionally, corruption plays a significant role in facilitating IFFs. Corrupt practices, such as bribery and collusion, allow companies to bypass regulations and tax obligations. The High-Level Panel on IFFs from Africa has pointed to corruption as one of the primary enablers of these illicit flows, particularly in the mining sector.
The Economic Consequences
The economic consequences of IFFs are stark. According to the Global Financial Integrity Organization, Tanzania loses an estimated $3.5 billion every year to illicit financial flows, with the entire East African region suffering losses of around $6 billion annually. These funds could have been used to strengthen the economy, improve infrastructure, and support social services.
The research institute Policy Forum also highlights that annual losses due to IFFs amount to trillions of dollars globally, with African countries bearing a disproportionate share of this burden.
World Bank data further shows that Tanzania’s GDP growth rate peaked at 7.0 percent in 2013 and has since declined to 4.8 percent. This downward trend indicates how IFFs have undermined the country’s economic stability, making it difficult for Tanzania to sustain steady, robust growth.
Moreover, Tanzania’s tax-to-GDP ratio remains low, hovering around 12-14 percent over the past decade. This stagnation is a direct result of IFFs, as the erosion of the tax base reduces the government’s ability to collect sufficient revenue. As a result, the government faces challenges in investing in essential public services such as healthcare, education, and infrastructure—further limiting the country’s overall development.
Government Efforts and Challenges
The Tanzanian government has taken steps to curb IFFs in the mining sector, including establishing over 100 mineral markets nationwide. This initiative aims to provide legal selling points for miners and reduce the prevalence of smuggling. By offering a more transparent and regulated environment, the government hopes to ensure that more mineral sales are properly reported and taxed.
Additionally, the formation of task forces to monitor mining sites and ensure accurate production reporting is a positive step. However, the success of these initiatives depends on the government’s ability to enforce regulations consistently and tackle the root causes of IFFs, such as corruption and trade misinvoicing, which continue to plague the sector.
Addressing IFFs in Tanzania’s mining sector requires a concerted effort on several fronts. Strengthening transparency, improving tax administration, fostering international cooperation, and tackling corruption are all essential. Only by committing to these measures can Tanzania hope to unlock the full potential of its mineral wealth, ensuring that it benefits all its citizens and contributes to sustainable national development.
In conclusion, while Tanzania’s mining sector has made impressive strides, the ongoing challenges posed by illicit financial flows continue to deprive the country of the resources needed for its growth and development. Tackling IFFs is crucial not only for the mining industry but also for the broader economic stability and social well-being of the nation.
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