The Case of Tanzanite

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The Case of Tanzanite

  1. 1. SAVED BY THE BIRTH STONE HOW THE DISCOVERY OF TANZANITE CHANGED THE5/1/2010 LIVES OF THE ORDINARY PEOPLE THROUGH FOREIGN DIRECT INVESTMENT. “Thousands of years ago, on the quiet plains of the Maasai Steppe in Tanzania, lived the Maasai. Many years of drought caused their king great pain. After a
  2. 2. Saved by the birth stone mysterious dream, he announced that he would journey to the misty summit of Mount Kilimanjaro, home of the gods. He told his beloved daughter, Ayanda, to care for the people until his return. Heavy of heart, Ayanda watched her father walk towards the distant slopes. Ayanda cared for her people and they, in turn, adored their beautiful queen. One hot and dry night, Ayanda too was visited by a dream. Her father took her by the hand and guided her to the edge of a vast lake of violet- blue depths. Ayanda understood that her father would never return but that he was showing her the means to save their people. Ayanda set off to find the life-giving waters. For weeks she travelled arid lands. Finally she reached the foothill of Kilimanjaro where nestled in a shallow valley was the promised lake. Ayanda leaned over to drink from the waters: her father’s image shone up at her from the crystal blue- violet depths. She reached to touch his face, but it disappeared amongst a swirl of ripples. On lifting her hand from the water, a small drop fell into her lap. The drop magically transformed into a beautiful, faceted gem the deep violet-blue of the lake. And the heavens broke out with a cool, sweet rain, bringing life to her land. Centuries later, the Maasai people were again struck with poverty. Remembering the legend of Queen Ayanda, the village elders decided to make the journey to Ayanda’s fabled lake. What they found was not the blue-violet waters that legend spoke of, but a deposit of precious blue-violet gem. The gem was named Tanzanite in honor of the Tanzanian people.”Despite the hope that people engrained in the stone, it seems like Tanzanite hasfailed to save them from the vicious circles of poverty.On a hot airy night in November, Dr. Peter Kafumu, the Minister of Energy andMinerals, was looking out over the endless panoramas of green fields that his countrywas so rich in, as he remembered the myth that his grandfather told him when he wasa little boy - with hopes that he too, some day, could save his people from poverty.Dr. Kafumu was sipping a popular local liquor konyagi, wondering if he should haveagreed with President Kikwete three years ago on the question of the miningcontracts. President Kikwete proposed to increase tax royalties from the miningcompanies in order to boost tax revenue. However, Dr. Kafumu believed in tradeliberalization and the attraction of foreign dirext investment (FDI), which would bestymieed if the royalties to mining companies were to be increased. Page 1
  3. 3. Saved by the birth stoneNow his ideas were questioned in High Court by a constitutional petition that wasfiled in November 2009 seeking to have all the mining contracts entered into by thegovernment without Parliaments approval declared null and void. The petitionersbelieve that the government is giving away their natural resources to miningcompanies without getting a fair compensation for the people from taxes androyalties. Dr. Kafumu is believed to have sole power in signing these mining contractswhich include huge tax concessions. (Ayanda tanzanite) Page 2
  4. 4. Saved by the birth stoneContentsINTRODUCTION ......................................................................................... 41. TANZANITE .......................................................................................... 62. PORTER’S DIAMOND ............................................................................. 7 2.1. Factor conditions ................................................................................ 9 Human Labor .......................................................................................... 10 Material Resources ................................................................................. 11 2.2 Demand Conditions ............................................................................ 12 2.3. Related industries ............................................................................. 13 2.4. Firm Strategy, Structure and Rivalry .................................................. 163. A 3-PARTY RELATIONSHIP BETWEEN THE GOVERNMENT, FOREIGN INVESTORS ANDSMALL-SCALE MINERS .............................................................................. 26 3.1. Mining companies and community development ............................... 30 3.2. Tax initiatives .................................................................................... 31CONCLUSION ........................................................................................... 34 Update as of April 24, 2010 from Reuters ................................................ 34APPENDICES ............................................................................................. 37 Table 1. World Tanzanite Production ........................................................ 37 Table 2. Production of Tanzanite by Tanzanite One .................................. 37 Table 3. Ease of doing business in Tanzania ............................................ 38 Summary of Indicators .............................................................................. 39 Table 4. Economic contributions by mining companies – general economic indicators ................................................................................................................. 41REFERENCES ............................................................................................. 42 Page 3
  5. 5. Saved by the birth stoneSaved by the birth stoneTHE AIM OF THIS CASE IS TO DETERMINE WHO IS BENEFITINGFROM THIS CONTROVERSIAL INDUSTRY AND WHAT IMPACT THEMINING OF A RARE TANZANITE HAS ON THE ECONOMY OFTANZANIA.INTRODUCTION The theme of this paper is determine if a country can transform a monopoly ona natural resource into a competitive industry and can effectively implement FDIpolicies to benefit the growth of the economy as well as the development of thecommunity and infrastructure. The aim of the research was to show that despite theefforts to make a country competitive for foreign investors and attract FDI, it is vitalto make a distinction in the impact of the FDI on the economic, social and politicalfactors. It is important to have a stable and reliable political framework that allowsthe country to distribute the accumulated wealth from foreign sources fairly;otherwise, the benefit of FDI, without a direct impact on the economy and lives of thelocal people, is reduced to profits shared among the elites of the government and theCEO‟s of major companies. The paper is organized in three chapters that discuss the history of Tanzaniteagainst the backdrop of the Porter‟s diamond and cluster models, showing whatfactors in the industry fail to support the whole system. In the last chapter theintertwined relationship between the government, the local miners and the foreigninvestors is shown. Looking at the economical factors, it is possible to say at a firstglance that Tanzania has all the resources to transform its unique resource into a“goldmine”. However, looking into the political situation reveals that the situationleaves much improvement to be desired. Page 4
  6. 6. Saved by the birth stone Before going into the discussion of Tanzania, an insight into a neighboringcountry is essential to understanding what could have been done differently toachieve a national competitive advantage. It is useful to present the example of Botswana which as a poor country withrich natural resources has achieved great economic growth and stability. It currentlyranks as #3 on the African Competitiveness Report in 2009 only after Tunisia andSouth Africa. At a first glance Botswana could fall into the category of a “resourcecurse” country. Nevertheless, it has reached a success rate thanks to its managementof these precious resources, rather than their exploitation. From 2004 to 2005 theeconomy of Botswana grew by 8.3% benefiting largely from the mining industrywhich represents 35% of GDP and 80% of exports. Health facilities, education, cleanwater and electricity are available to over 90 percent of the population; and literacyrates, which stood at 50 percent in the early 1970s, are over 80 percent today.(SANGA, 2006/2007) The new administration that came in 1995 performed a political miracle – theyactually implemented the policies that they promised: low and stable taxes to miningcompanies, liberalized trade, increased personal freedom, and low marginal incometax rates (to deter tax evasion and corruption). The growth was further encouraged bythe properly ran institutions and good governance – two common sense attributes ofa successful government. Unfortunately, these melancholic dreams of a better futuredid not seem to reach the hearts of the Tanzania officials who failed to follow theBotswana experience in a more lucrative situation. After all, Botswana has achieved aDe-Beers like success with diamonds, which are found in other parts of the world.Tanzania on the other hand is the only source of tanzanite, revealing how far the“resource curse” can go. Despite all the accusation, they tried to make it happen. After becoming the United Republic of Tanzania in 1964, the government startedpromoting the inflows of foreign direct investment (FDI) through an attractive taxstructure and tariffs, protecting companies from nationalization and expropriation,offering investment opportunities in the public sector. In 1986 the Economic Page 5
  7. 7. Saved by the birth stoneRecovery program focused on macroeconomic stabilization and trade liberalization.By 1999, virtually all export restrictions had been eliminated. The rationalization ofimport tariff rates in 1998 reduced it from 35% to 23% (A case study of Tanzania:impact of FDI on developing economies, 2003). These measures have undoubtedlyattracted foreign investors; however, the price that was paid for their benevolenceseems to be too high. Today Tanzania is still one of the poorest countries in the worldwith per capita income estimated at $US440 in 2008 (World Bank, 2008). 1. TANZANITETanzanite is a deep blue-violet gemstone discovered in 1967 in the Merelani Hillsnear Mount Kilimanjaro and 70km south-east of Arusha. Merelani is the only sourceof tanzanite in the world with a supply projected to be 15-20 years depending on the methods and pace of extraction. Geologists predict that the chances of finding another deposit are 1: 100,000 (Tanzanite One). The stone saw the light of day when a geologist‟s father Hyman Saul showed the stones in New York to Henry B. Platt, Vice President of Tiffany‟s, who decided to market the stone to the rest of the world. The mineralogical name of the stone, zoisite, sounded much like “suicide,” hence Mr. Platt christened the stone after the country of origin. The largest crystal of gemHTTPS://WWW.CIA.GOV/LIBRARY/PUBLICATIONS/THE-WORLD-FACTBOOK/GEOS/TZ.HTML tanzanite known to survive measures 7 by 8by 22 cm and weighs more the 3 kg (16,839 carats). It was found in July 2005 inBlock C. The Tanzanite One Company has decided to retain the crystal in its uncutstate, as an exhibit specimen, though it is currently kept in vault because of its highvalue (Vincent Pardieu and Richard W. Hughes, 2008). Page 6
  8. 8. Saved by the birth stone After a growing interest for the rare stone, the government of Tanzania decidedto divide the 2 by 8 sq km of deposit into four areas, named blocks – A, B, C, and D.The government attempted to profit from the booming sector by nationalizing themines in 1972 in a State Mining Corporation until 1983. The nationalized mine waspoorly management, had haphazard open-pit mining and led the State to abandonthe mines in 1986. In 1990 the government decided to clear the area and license it toforeign investors and local miners. The most suitable area – Block C – was awardedto JABE, a British –Australian company (later Afgem and Tanzanite One). The otherBlocks were licensed to local businessmen as well as small-scale miners who arerepresented by the Arusha Regional Miners Association (AREMA). Signs of enrichment started to emerge: the wealth of the lucky Merelani brokersis invested in local hotels, bars and clubs. Brand new Toyota Land Cruisers and off-road motorcycles maneuver on the treacherous dirt roads that cut through town.Satellite dishes adorn hastily built homes. Cell phone towers can be seen in town andit is even possible to gain internet access through the phone. But most people livedesperate lives. This is a town of lawlessness. There is no running water. Those whocan‟t afford bottled water take it from shallow wells, contracting diseases like typhoidand cholera. 60% of the people may be HIV infected. A deeper look at the country‟sindustry and economy will reveal the reason for such disparity in the distribution ofthe tanzanite profits. In the following chapter, Michael Porter‟s Diamond and Cluster Frameworks areused, as well as the value chain, to see if discovery of tanzanite could create acompetitive advantage given all the factors and conditions.2. PORTER’S DIAMOND Michael Porter (Porter, 1998) argues that there are inherent factors in eachnation that create the foundation for creating a competitive advantage. In this case,the limitation of the framework is that essentially there is no competition since one of Page 7
  9. 9. Saved by the birth stonethe foreign companies dominates the process. It will be explained further how thegovernment could assist in changing this situation. This sector explorescompetitiveness dynamics that could be adjusted with the help of the government. The national playing field is an important determinant in the competitiveness ofthe country, as determined by Porter. His diamond framework will be used to show ifthe government of Tanzania has achieved a competitive advantage in an industrywhere it inherited a monopoly over the rare gemstone. Each of the factors in the quadrants determines the dynamics ofcompetitiveness. As can be seen from the diagram, the role of the government in thisframework should be that of a facilitator and motivator for companies to increasetheir advantages through fair competition, by enforcing anti-trust laws andpromoting small and medium-size. The following sub-chapters will look at the state ofthese conditions in Tanzania and their impact on the advancement of possiblecompetition. Page 8
  10. 10. Saved by the birth stone 2.1. Factor conditions Porter argues that inherited factors, such as natural resources and unskilledlabor do not contribute to a competitive advantage because any other firm can obtainthem. A competitive advantage is obtained when the firm creates a product, service orrelationships with suppliers and/or buyers as well as the government and otheragencies that is difficult to imitate. In the same manner, the country must possess anattractive infrastructure, skilled human capital, political and economic stability to beattractive to foreign investors. There are factors that are not inherited and can bechanged, such as the macroeconomic stability, political situation and socio-culturalfactors. Tanzania is free of ideological confrontations, ethnic problems and labordisputes; it is considered a center of economic and political stability in Sub SaharanAfrica. As a result of prudent fiscal and monetary policy, the inflation rate has beenlowered to sustainable level of 12.5% as of November, 2009 (National Bureau ofStatistics, 2009). The government has increased revenue streams and reducedspending, which enables it to grow the current account and increase the level ofdomestic investment spending and the growth of economy. Institutional support isreadily available from the Tanzania Investment Center. Mining and tourism are themain recipients of FDI and are tipped to become growth sectors. Since this industry is labor intensive at the outset, Tanzania has great potentialwith its low cost of labor and natural resources. However, companies need adeveloped infrastructure and a reliable economic and political background to performoperations. Besides, after around 200 meters, it is almost impossible to dig by hand,and technology is needed to continue exploration. At this point only the foreigncompanies have the power to obtain the financing for this type of technology anddeliver knowledge and skills for its use. The rarity of tanzanite makes it an attractive investment opportunity, as well asa source of government revenue. If the proper education on the rarity of this stone is Page 9
  11. 11. Saved by the birth stoneperformed, the government may stand in a position of power as it possesses a limiteddesirable resource. However, from the point of view of the multinational companies(MNC‟s), tanzanite may be just a mineral that may be compared to all the otherinvestments in the mining industry. It is in the best interest of the government ofTanzania to present it as a rare opportunity and provide ample resources for foreigninvestors.Human Labor The labor supply in the mining industry remains a challenge, yet Tanzania isone of the poorest countries in the world, and people travel from other regions towork in the mines. The Merelani area alone provides around 75,000 people with anestimated 15,000 mine workers (MAGNE BRÅTVEIT, 2002). The Maasai people whoare the indigenous tribe in the area look down on the work of the miners and prefernot to engage in such business. However, workers from other cities (where there arefew other job opportunities) flow into the area in hopes of finding a fortune. 60% ofthe population lives on less than $2 a day and an average person lives on $280 a year(USAID, 2005). Mining is a tedious process involving manual labor, which oftenattracts uneducated and unskilled labor. The people also move around a lot in searchof better opportunities. Those workers who switch to mining are usually involved inagriculture and cattle farming. If they find no success in the gemstone business, theyare likely to go back to their previous livelihoods. Therefore, the level of commitmentis low on the side of the workers. Following successful negotiations between thecompany and the union representatives and government, non-core employees arepaid sector rates as opposed to mining sector rates. The average pay for mineworkersin Tanzania is US$128 to US$240 a month. This is a high salary compared to otherjobs, in areas where few other jobs are available. However, by contrast, Barrick‟schief executive, Greg Wilkins, received US$9.4 million in 2006, including basicsalary, bonus and stock options. It would take an average Tanzanian miner over 500years to make this amount of money (Lissu, 2008). Page 10
  12. 12. Saved by the birth stone The knowledge capital related to this industry is low since it attracts a certaintype of people, usually poor and without formal education. However, the labor force istrainable and the government has made a long-term commitment to develop a pool ofwell-trained and educated specialists. The government recognizes that if they don‟tinvest in education now, they will have a gap of knowledge in this generation, puttingthem further in line for attracting FDI. This issue if not dealt with will affect thefuture human resource of a nation because they are getting a generation of childrenwho are missing out on education. The outcome will be that they will have a gap or ageneration of people who are not educated, who don‟t have any skills to contribute tothe human development. Women sell food at the mines, but their income from the business is not enoughto support the family. This dire situation forces women to subsidize their incomethrough prostitution. Children are also compelled into sex work in order to survive.Sub-Saharan Africa has the highest proportion of child laborers of any region in theworld. Unfortunately, Tanzania is not an exception. Parents encourage their childrento work at the mines because there are no schools near the diggings. Children arecalled “snakes” for their ability to move lithely with dynamite through the narrowmine pits. Every day, 4000 child miners between the ages of 8 and 14 risk their livesin poorly constructed mine shafts for barely a meal a day (TANZANIA Gem Slave,2006). The government doesn‟t want kids to work in mines. It is the government‟swish that they go to school, but there are not enough schools for the kids.Material Resources The capital resources are also scarce; it is difficult for an individual to obtainfinancing if he were to start a business in mining a pit. Most of the men get theproceeds from the sale of their cattle for the initial investment in the mines. Claimtitles are cheap ($18 per year), while the investment to start production is extremelyhigh. One needs $91,743 to buy a compressor, water pump, explosives and otherequipment. A common share system in small scale mining is that the sponsor gets Page 11
  13. 13. Saved by the birth stone40%, the claim holder 30%, the person owning the compressor 20%, and the workersas a group 10%. According to the Zonal Mines office there are 600 claim holders inthe northern zone, of which 200 are active at any time. AREMA1 operates with anumber of 700 mines in Merelani alone. Each of the active claim holders has 25-60workers, which means there are 12,500 small scale miners in Merelani (Lange, CMIReport R 2006: 11 54 p. ). Nevertheless, the development of the industry is bringing urbanization featuresto the locals. The National Micro-Finance Bank (NMB) plans to install an ATM atMerelani Township in Simanjiro district in a bid to bring financial services closer topeople. The present NMB decision follows a special request from Merelani residentsthrough a Tanzanite dealer Laizer Kurian. The township has no bank services andinstead people are forced to travel long distances to t Arusha or to Boma Ng‟ombe inHai.2.2 Demand Conditions According to the World Bank, the population of Tanzania in 2008 is around 42.5million people with a growth rate of 2.9% per year. A population that can barelyafford food and water will hardly bother to get jewelry. The local demand is supposedto drive the innovation and product development; the more educated and demandingthe consumers are, the more the local companies will try to please the customer byoffering better quality product or service. In the case of tanzanite, the local demand isobviously low. The only buyer‟s market that exists is that of the local dealers andbrokers that buy directly from the mine in the village or in town and later resellabroad. The miners are uneducated about the prices that transfer abroad and sell thestone at a fraction of what it is worth to the end consumer. Raw tanzanite represents one twentieth of the final value of the stone aftercutting and polishing. In 2008 the prices of raw tanzanite were $9-14 per carat1 Arusha Regional Miners Association Page 12
  14. 14. Saved by the birth stonecompared to the price of a cut and polished stone selling at $250-500 (Kilimba,2008). The external market is represented by Jaipur, India, where 80-90% of the stonegoes for processing; therefore most of the value accrues overseas. The U.S., SouthAfrica and Thailand are the main trading markets for tanzanite, accounting for about70% and Europe 5% (Selasini, 2009).2.3. Related industries Related industries are represented in the cluster model where support oneanother in an area which has reached a certain level of integration in clusterdevelopment. Mining is yet an indigenous industry which is self-sustainable. Beforethe foreign companies, artisanal miners used only their hands and a few simple toolsto dig for the stones. Therefore, it is difficult in this industry to form clusters were theother companies would support the mining. Of course transportation, food,telephone, and hotel industries have grown since the coming of the big multinationalcompanies. Page 13
  15. 15. Saved by the birth stoneThe value chain helps to determine if the industry is positioned to become a cluster.The value chain follows the process of creation of a product or service to its finalconsumption or use. If the value chain participants are closely intertwined, yetindependent, they can drive competition. If the buyers and suppliers of the companyare separate entities, a process of development is sustained. However, if the companyis vertically integrated, it creates a lot of value for the company, but leaves no roomfor rivals to develop a competitive environment. Page 14
  16. 16. Saved by the birth stone The value chain of mining consists of exploration, mining, ore crushing andprocessing, transportation, dealers and brokers, jewelry design, wholesale and retail.Unfortunately most of these value adding activities are outsourced and are unable toform a cluster. Tanzania is left to do the extractive work. However, in June 2003, thegovernment banned the export of unprocessed tanzanite over 1 carat to India. It wasto spur the local lapidary work and processing facilities, recouping the value for thelocal people. Jaipur in India has one third of its exports from tanzanite (Kilimba,2008). Tanzanite One, the largest mining company of tanzanite, has set up 6 cuttingstations in Merelani and has hired both men and women to do this work. Thecompany has trained the cutters themselves, both locally and in South Africa,planning to expand the tanzanite facility to 25 cutting stations and to invest evenmore in training. There is only one other company which exports stones. The owner,Sailesh Pandit, says employment would be secured for 3000 people if all stones were Page 15
  17. 17. Saved by the birth stoneprocessed in Tanzania (Lange, CMI Report R 2006: 11 54 p. ). Besides, localprocessing doesn‟t mean that the quality goes down. The mining sector falls under the jurisdiction of the Ministry of Energy andMining. There is also a Chamber of Mining that oversees the development of thesector and serves the interests of large, small and artisanal miners in collaborationwith Tanzania Miners Development Association (TAMIDA). Mining, research andexploration center located in Dodoma serves as a referral center for all technologicalstudies and related research. Foreign investors partnered with local investors are themost favored for licensing purposes. This should increase the demand for localprocessing of the gemstone. Because of the fragmented nature of operations every business tries to do allthings for themselves: bulk supplies procurement from long distances (miningequipment and food), health services, transportation, technological and socialinfrastructure development, small scale lapidary work, entrepreneurial developmentand employee capacity building. The result is uncoordinated growth and developmentof the mining area. Coordination of existing fragmented service providers and theassociations into a solid network that is facilitative to the various suppliers wouldstrengthen the cluster. More investment in lapidary and jewelry manufacture andcapacity building is needed for relevant local skills. The whole industry would become more competitive if the following issues wouldbe addressed: artisanal miners don‟t have access to technology, socio-economicdevelopment efforts are uncoordinated, the lapidary development is low, small scaleminers suffer from dominant buyers of raw and polished tanzanite and have littlebargaining capacity, low multiplier/spillover effects of mining to related economicactivities.2.4. Firm Strategy, Structure and Rivalry Page 16
  18. 18. Saved by the birth stone The main players of the industry can be divided into local miners and foreigncompanies. The main foreign player is Tanzanite One, which is South-African,previously under the name of Afgem. Tanzanite One occupies Block C, the otherblocks are destined to be for the local miners, who are represented by twoassociations AREMA and MAREMA. Main Players1. Tanzanite One Company LtdThe following three players are subsidiaries of the main company and represent a fullforward integration.2. Tanzanite Trading Ltd3. Tanzanite Marketing4. Tanzanite Foundation5. Arusha Region Miners Association (B and D)6. Manyara Region Miners Association (B and D)7. Tanzanite Africa Ltd (D) The tanzanite resource strikes along a length of seven kilometers and is dividedinto four blocks. Tanzanite One in Block C undertakes large scale mining; mediumscale mining is undertaken by Kilimanjaro Mining in Block A and Tanzanite Africa inBlock D. The company‟s neighboring Blocks B and D are mined largely by artisanaland small scale miners. This poses a challenge for Tanzanite One - the artisanalminers continue mining into Tanzanite One‟s designated license area. This continuesto be a major challenge to the operation with ongoing illegal mining activitiescontinuing to take place from both Blocks B and D. Constant communication withofficials from the Zonal Mines Office and the Ministry of Energy and Minerals yieldsresults from time to time, but the problem continues. The foreign investors are more welcome by the government since they bring newtechnology, skills, spillover effects (such as employee training, introduction of newtechniques, management know-how, which are generally more beneficial in themanufacturing sector) as well as safe working conditions and community Page 17
  19. 19. Saved by the birth stonedevelopment projects. On the other side, the local miners face many challenges, astheir production is dispersed and they are disorganized. Due to unsafe miningpractices, they have suffered several accidents in the mines. Although they aresupposed to dig straight down on the 150 by 150 feet plot that they are assigned,nobody follows the rules (Lovgren, 2001). The mines are in the form of “Swisscheese”. The government officials seem to close their eyes on the tense relationshipsbetween multinational companies and artisanal miners. The controversy around thelinkage of tanzanite to Al-Qaeda funding has been groundless. Nevertheless, it seemslike the whole aim of the story that was published in the Wall Street Journal byDaniel Pearl and Robert Block on November 16, 2001 was to show that the artisanalminers were involved in the smuggling of the stone and that anything bought fromthem could be of dubious origin. The story created quite a stir and several articlesthat appeared shortly after never failed to mention that despite the link of tanzaniteto terrorism funding, there is only one company that tracks the stone from themining pit to the hands of the consumer – Tanzanite One. It has been mentioned thatthe journalist of the article visited the Tanzanite One shortly before the issue,perhaps going over the story. Even though Tanzanite One would have suffered as thesale price of tanzanite dropped 50%, it is possible to consider that they implementeda long-term strategy, where they would draw the attention to the dark link oftanzanite to terrorism, and then carefully isolate themselves from this picture. Thus,in the eyes of the consumers, Tanzanite One would be the only viable supplier of therare gemstone. Isn‟t it a perfect recipe for a monopoly? Of course, the artisanalminers were furious with the attempt of Tanzanite One to push them out of themarket. The story attracted attention across the world and was a threat to the reputationof the stone, as many jewelers dropped the sale of tanzanite after the article waspublished. Shortly after the investigation, on February 9, 2002 in Tucson, Arizona,the Government of Tanzania and all trade associations representing the full Page 18
  20. 20. Saved by the birth stoneinternational scope of tanzanite miners, gemstone dealers, manufacturers, suppliersand the retail jewelry industry in the United States, which accounts for 80% of theworld market for tanzanite, met and agreed to eliminate concerns about the tanzanitetrade, its alleged connection to funding terrorism, and to restore confidence intanzanite. The Protocols were to designate the mining area as Merelani ControlledArea and develop plans to tighten security around the mine enclave and strengthenrules governing the exports. A high-level US delegation that same year verified that the government wastaking substantive steps to comply with the agreement. The tangible effects are thefollowing: By 2007 a 10 foot fence was built encircling the entire 12km² mining enclave.Police and guard posts were built. Systems of written warranties and securepackaging were in place and observed by legitimate exporters. Smuggling dried up to10% of its former volume. The use of child labor has decreased dramatically.Thousands of miners and laborers acquired official ID passes (Schroeder, 2010). Onbalance, many of the leaks, facilitating illegal trading, were plugged. Tanzanite One met the requirements before they were set in place. Theypossessed a self-contained mining compound with elaborate security measures toguard against theft by their own employees and outsiders, they moved their gemsthrough a vertically integrated system that funneled rough stones directly toprocessors, wholesalers and jewelers. In 2009 Tanzanite task force was formed tocarry out the Tanzanite Protocols. A chain of warranties would accompany eachtanzanite shipment from the mine all the way to the retail store, stating that“tanzanite herein invoiced was mined in Tanzania and has been traded throughlegitimate sources.”COMPANY’S STRATEGY Tanzanite One represents the only large foreign company in the Merelani minesand has developed a strategy that helps it stay that way. Tanzanite One is the largest Page 19
  21. 21. Saved by the birth stoneand most scientifically advanced miner and supplier of rough tanzanite, a uniqueposition that affords it the opportunity to support and influence the entire channel,from mine to market, ensuring that maximum stakeholder value is achieved at eachstage of the process. The mine is considered a modern, low-cost operation and boastsan exemplary safety record. It applies international best practice in the design of itsemployment, social and environmental policies. Processing and sorting take place onsite within purpose-built infrastructure and facilities. A conservative estimate ofTanzanite Ones resource, and as published at the time of listing on AIM in 2004,would place the figure at 63-83 million carats. At an average price of $ 12 per carat inthe rough, this represents an estimated $756 million to $996 million in the ground(Tanzanite One, 2008). It has vertically integrated itself into trading, marketing and building awarenessof tanzanite through Tanzanite Trading, Tanzanite Marketing and TanzaniteFoundation. Their strategy is similar to the De-Beers cartel in the diamond industrywhich controlled the prices and positioned diamonds as the stone for a life-timewhich should never be sold, thus limiting the supply. They were the ones who cameup with the marketing slogan “A diamond is forever” and made it the obligatoryengagement ring, pouring in millions of dollars in marketing to strengthen the spell.In the same manner, the Tanzanite Foundation, a subsidiary of Tanzanite One, cameup with a similar strategy. The next section tells the story: “Tanzanite, the birthstone, is the gift given on the birth of a child. Fittingly thistheme draws on the inspiration that we are all born to something special. Thepromise of a person begins with the earliest moments of life and every traditioncherishes and celebrates a child being born, the miracle of birth, and the gift of life.From the heart of Africa comes a powerful tradition. Maasai women who have had the Page 20
  22. 22. Saved by the birth stonehonor of giving birth to a baby wear vibrant blue beads and adornments to bestowupon the child a healthy and positive life, whilst setting themselves apart as creatorsof new life. This custom, protected and preserved by the proud Maasai through thegenerations, is now celebrated in a modern tradition: the giving of tanzanite on thebirth of a baby. Every culture all over the world cherishes and celebrates the miracle of new life.Tanzanite, a precious heirloom to treasure through the generations, is the perfect giftto give on the occasion of birth. It uniquely symbolizes new beginnings, and paystribute to those who have shown the greatest of loves by becoming a parent.”(Tanzanite One) With the help of this “spell” Tanzanite One controls 35% of tanzanite(Larenaudie, 2007). Naturally, due to the fact that they have the rights to Block Cwhich is considered the most productive part of the mine, as well thanks to thecompany‟s efforts to be everything from the supplier to the distributor and thecertifier. Production for the year 2008 totaled 2.2 million carats, a significant 29%increase over 2007, recovered from 42.3 thousand tonnes. This was also a result of acombination of improved mining methods and increased security presence throughthe upgrading of security systems. The company‟s ability to increase production to 3million carats per annum remains unchanged and it will be fully exploited once themarkets return to normality. In August 2008, Tanzanite One opened The TanzaniteExperience (TTE), a museum in Arusha that showcases the history of tanzanitethrough a series of visual and interactive exhibitions whilst affording visitors theunique opportunity to purchase cut and polished tanzanite directly from the world‟sonly known source. TTE targets approximately 600,000 tourists who pass throughthe town annually. Marketing is geared towards safari companies and tour operatorsin an effort to include a visit to this facility on their itineraries (Tanzanite One, 2008).In a nutshell Tanzanite One is carrying out a massive strategy of dominating themarket and letting the whole world know about tanzanite. Page 21
  23. 23. Saved by the birth stone The following structure of the Tanzanite One Company shows how the companycontrols the supply, marketing, grading, certification and community projects tofurther spread the monopolistic influence.Tanzanite One Trading Tanzanite One Trading is a Group subsidiary based in Arusha that purchasesrough tanzanite from smaller miners, brokers and dealers; cementing its position asone of if not the strongest tanzanite buying operation in Tanzania. Tanzanite OneTrading operates under the guidelines of the Tucson Tanzanite Protocols. TanzaniteOne Trading (T1T) Relationships have been developed with all the prominent.Processing and selling is controlled by Tanzanite Trading; it buys from small scaleminers, which accounts for 15% of output (Tanzanite One ). In support of more stability in terms of rough prices, Tanzanite One Tradingpays a small premium. This strategy has been well received in the local market andas a result, Tanzanite One Trading has become a market leader in procuring highquality material.Tanzanite One Marketing Tanzanite One Marketing is the Group‟s marketing and sales arm for roughtanzanite. The subsidiary consolidates the available mined and traded roughtanzanite and is able to add further value by applying a proprietary rough tanzanitegrading system and preparing parcels of material specifically suited to the individualbusiness needs of each of its eight “sightholders”. This is achieved through the Preferred Supply Strategy, which is a world first inthe colored gemstone industry, aimed to grow the global market for tanzanite throughstrategic collaborative relationships with exclusive customers, „Sightholders, selectedfrom the worlds leading gemstone houses and jewelry manufacturers. Page 22
  24. 24. Saved by the birth stoneSightholders have been chosen for their focus on tanzanite, ability to make a long-term commitment, distribution capabilities, understanding of the need for verticalintegration and most importantly their operational standards of integrity. Their beliefin and commitment to supporting an ethical route of the tanzanite market has alsobeen a prerequisite for their appointment. Tanzanite One has initially appointed eight Sightholders, with plans to increasethis number in the medium term. These initial eights are listed below (Tanzanite One):• AG Color Inc• Colorjewels• Intercolor• Paul Wild• KL Tambi• Rare Multicolor Gems• STS Jewels Inc.• Tanzanite InternationalThe Tanzanite Foundation The Tanzanite Foundation is a non-profit, industry-supported organization thatstrives to develop the tanzanite industry by growing demand and creating value forall stakeholders in the tanzanite value chain. By striving to standardize stakeholderconduct and communication, the Tanzanite Foundation aims to uphold an ethicalroute to market in accordance with the Tanzanite Tucson Protocols and invests inmeaningful and sustainable projects developed in configuration with the localcommunities situated at tanzanite‟s source. Tanzanite One is a founding memberand primary fund provider of the TanzaniteFoundation. In order to contribute positively Page 23
  25. 25. Saved by the birth stoneto the community and area surrounding the tanzanite mines, the TanzaniteFoundation™ is committed to making a meaningful and sustainable difference to thesocial, economic and environmental uplift in the area.Projects undertaken to date include:• the construction of a 400m² Community Centre for the residents of Nasinyai,the village bordering the tanzanite mining area• the renovation and installation of electricity to the Nasinyai Medical-Clinic• the upgrading and maintenance to the road leading to the tanzanite miningarea• active participation in the establishment of the Merelani Controlled Area. Incompliance with the Tucson Tanzanite Protocols the Tanzanite Foundation™provided funding and support for the establishment of a satellite police station in themining area and donated a police vehicle to local authorities• the provision of water to over 2,000 villagers and 4,500 head of cattle on a dailybasis in the severely drought stricken region surrounding the tanzanite mining area• the refurbishment and extensive expansion of the Nasinyai Primary School,which has seen school attendance quadruple to a current figure of 432 enrolledstudents• in partnership with the Nasinyai community and World Vision (an internationalaid Christian humanitarian organization), the construction of Nasinyai SecondarySchool• the development and initiation of SMAP (Small Mines Assistance Program).SMAP provides geological, mining, survey, safety, logistical, operational and otherguidance and support to small mines with the aim of building and developing theentire tanzanite mining industry and sound stakeholder relations• mitigation of acid mine drainage by appropriate design of waste rock andtailings disposal systems and monitoring of water quality. Regular water analysisindicates that Tanzanite One is well within the recommended pH levels• the donation of tailings to local communities, which also operates as a Page 24
  26. 26. Saved by the birth stonecommunity support project. Tailings have a recognized and measured tanzanitecontent which is uneconomical for Tanzanite One to extract. Local communitiesextract this tanzanite, which is generally sold back to Tanzanite One Trading. Theremaining tailings are used as building material. This system reduces waste andencourages economic activity• rendering old mine workings safe, and continuously monitoring the same;closing numerous old mine workings on Tanzanite Ones property and in commonareas around the mining license that were deemed safety hazards. (Tanzanite One)Tanzanite One secured a position where it holds the keys to all the steps in theprocess. By integrating forward and backward, the company is able to control theprocess in a De-Beers style, managing the supply and directing the price, which hasalready gone upward in the past decades.Grading and Certification The Tanzanite Foundation‟s Tanzanite Quality Scale™ is the first internationallyrecognized tanzanite-specific grading system. Developed in collaboration with leadinggemological laboratories, the Tanzanite Quality Scale™ is based on 4Cs criteria,grading tanzanite quality based on Color, Clarity, Cut and Carat weight. A fifth “C”stands for Confidence, and is the assurance that tanzanite accompanied with aTanzanite Quality Scale™ certificate is genuine, rare and precious (Tanzanite One,2008). Tanzanite One has benefited from the controversy around the Al-Qaeda link,since it promoted the certification that accompanies every stone from their mine as aguarantee against the “illegitimate” stones. As can be seen from this previous analysis and the strategy of the company, theindustry does not promote competition, since one giant corporation is trying to pushout all the small-scale miners. Besides, the latter don‟t have the technique orresources to drive innovation and be competitive. Tanzanite One had the resources to Page 25
  27. 27. Saved by the birth stonedrive the marketing campaign that created the demand for tanzanite which will havea stronger effect closer to the “extinction” of the stone. The role of the government is an important factor in the facilitation of acountry‟s competitiveness, and in the following part, it will become clear why theindustry turned out that way.3. A 3-PARTY RELATIONSHIP BETWEEN THE GOVERNMENT,FOREIGN INVESTORS AND SMALL-SCALE MINERS The government of Tanzania has carried out successful economic policies andstructural reforms to attract foreign investors. It seems like the industry is notdeveloping in a way that would benefit the local communities. Taking intoconsideration that the tanzanite reserves will be depleted within a decade or two, ifthe local community doesn‟t get the development funds from tax revenues, thecountry will be left without proper infrastructure, human development or a valuablenatural resource. Reform of the mining law in 1997 offered attractive fiscal incentives forinvestors: substantial tax breaks, and lead to a significant and rapid boom accordingto EIU. Favorable fiscal and legal measures flowing from the Mining Act have acted asa catalyst for FDI. : Tax incentives such as repatriation of profits Special VAT relief Zero import duties for equipment and machinery used during exploration Depreciation allowance of 100% 15% withholding tax for foreign contractors on technical services andmanagement fees. The mineral‟s sector contribution to GDP has risen from 2.0% in 1998 to 3.7%in 2007, and could reach 10% by 2025 (A brief on the mineral sector of Tanzania,2009). Page 26
  28. 28. Saved by the birth stone The question at hand is – why invite FDI if the benefits to the people areminiscule? It goes without saying that large mining companies earn huge revenues;hence they should pay enough taxes for the government to raise the standard ofliving of the people whose resources are being depleted. The following chapter willlook at the impediments that stand in the way of this promising industry. Tanzania exports 80% of tanzanite to US. It is a $500 million a year industryalthough Tanzania gets barely $20 million annually, with the lion‟s share going toIndian and American dealers (Lyimo, 2009). The discrepancy is not only caused bysmuggling through Kenya, but the government failing to collect revenue fromroyalties and taxes. Royalties are paid by commercial companies to the owners of a mineral in returnfor the right to extract a non renewable source; they are the main income thatgovernments earn from new mining projects in the first few years of operation.International companies can manipulate their tax base to reduce declared profits. In2003 an independent auditor contracted by the government to examine the accountsof four major gold companies alleged that the country‟s two largest mining companiesboth over-declared their losses, which reduced their tax liabilities. Companies canmanipulate their accounts where the company made profits, but no tax is due. Thistax deferral can continue for years, starving the government of their main source ofrevenue. A 2008 report by the Business & Human Rights Resource Centre estimatedthat the combined loss to the country over the previous seven years as a result of lowroyalty rates, unpaid corporation taxes and tax evasion by major gold minesamounted to US$400million (Research and Markets: Tanzania Mining Report Q1 ,2010). Another way a company can avoid paying taxes is by trade mis-invoicing.Companies either under-declare the value of their exports or overstate the prices oftheir imports. This enables the company to reduce profits. Most mining authoritiesdon‟t have the requisite skills to audit the complex accounts of large MNC‟s. The Page 27
  29. 29. Saved by the birth stoneauditors allege that they were hindered in their work by persistent reluctance of themining companies to cooperate. When the investment environment was not conducive in Tanzania, the WorldBank prompted the government to give the foreign companies major tax concessions.The government agreed to use all means to attract FDI even of dubious quality,knowing that it would hurt the country‟s long-term industrial development (with norevenues to fund its expenditures). It seems that now is the right time for a worldorganization to provide auditors who would make it clear who‟s making the money inthis industry. In October 2006 President Kikwete directed the Minerals and Energy ministry toreview mining policies and laws. President Kikwete and Commissioner for Mineralsand Energy Dr. Peter Kafumu didn‟t agree with each other on the mining royalties.President Kikwete argument of raising royalties was based on the experience of SouthAfrica, which charged a 12% royalty; and the desire to raise government revenue. Dr.Kafumu chose the side of foreign companies fearing that the increased royalty willshy away new investors into the country. Besides, South Africa is incomparable withTanzania in terms of infrastructure, human and capital resources. According to Dr.Kafumu, miners in Tanzania have to cover operational costs that are around 60percent of the total profit they generate. Out of this 60 percent, 20 percent is spenton taxes and other levies. This means miners are left with 40 percent and they stillhave to pay a further three percent as royalty. This leaves the miners with 37 percentand out of this, according to Dr. Kafumu investors have to service bank loans at 12percent and are left with 25 percent after-tax profit from where 30 percent incorporate tax is derived. (Jomo, 2007) However, Tanzania is becoming a more competitive destination due to goodgovernment policies (Bekefi, 2006). It would be wise if the royalty was changed foralready established companies, since their extensive investment would prevent themfrom leaving. These exemptions should only apply to new companies; however theones that are in place and reluctant to leave should be taxed at a higher rate. Page 28
  30. 30. Saved by the birth stone Companies argue that they need these tax concessions because mining is a highrisk industry that requires huge initial outlays of capital in the early years. But highreturn is accompanied by high risk, and after all – isn‟t this included in the cost ofdoing business in less developed countries? For some reason companies don‟t takethe government as a serious partner, especially in this case when the resource islocated only in Tanzania. It would be quite bizarre if a company asked the supplier togive them equipment for free just because exploration sometimes doesn‟t yield anyresults. Nevertheless, they approach the government of the resource in this manner.Of course it is important to hear both sides and come to a compromise royalty fee.However, in this case it appears that the fee is not the problem, the major leak is intax revenue collection. African governments are foregoing millions of dollars in revenue, because theyfailed to collect significant budget revenue from mining, despite higher productionand prices, for two main reasons: excessive tax concessions to mining companies,and aggressive tax avoidance by mining companies, primarily by insisting on taxbreaks in secret mining contracts. The main beneficiaries of the mining boom are ahandful of African political elites, the shareholders of mining companies, theengineering, construction and management consultant firms servicing the globalmining industry, and the financial institutions backing these ventures. The question is not whether to increase taxes or royalties but how to collectthem and make sure that the money is reaching the people. In March 2009 Reutersreported that a group of five grassroots organizations criticized the way thegovernment dealt with mining corporations. “Breaking the curse” said thatgovernments should publish and review all tax subsidies and concessions given toMNC‟s. Revenues lost by secret deals and backroom transactions could be used forfighting poverty. Only one miner in the country - AngloGold Ashanti - had paidcorporate income tax by the end of 2008, 10 years after industrial mining beganthere. Page 29
  31. 31. Saved by the birth stone Major reforms to the legislation covering the mining sector are expected in theamended Mining Act that was held in parliament in April 2009 include royalties ongemstones to change from 5 to 7%, for cut and polished stones - rising to 3% fromzero. The Parliamentary committee advised the government to stop selling shares inmining companies, stating that no mine should be wholly foreign-owned andrecommending that the government own a 10% share in all the mining companies(Tanzania Mining Report Q2, 2009).3.1. Mining companies and community development Mining companies create little forward or backward linkages into the local ornational economy that would stimulate more private sector development and jobcreation. World Bank believes that if multinational companies can commit tosustainable development as part of its bottom line, then the transfer of skills,technology and capital from mining can revolutionize the impact of mining oneconomic and social development. As can be seen from the example of the Tanzanite Foundation, a company cando a lot for a community that it is based in. But what are the motives that drive acorporation to do good? And is it good from the perspective of the Maasai tribe peoplewho are often evicted from their villages or are deprived of a water source because thecompany needed the land? Or is it unfair, from the perspective of Milton Friedman(Friedman, 1970), to expect the companies to provide the people with theirlivelihoods, replacing the duties of the failing government? Instead of improving electricity and transport network, fundamental to theoperation of the mining companies in remote areas, governments give them taxbreaks instead, hoping that this would compensate for the additional costs ofoperations. Therefore, Tanzania is falling down a slippery slope. If they don‟t collecttaxes and invest in infrastructure and human development, they will not only deprivetheir people of the basic needs but also loose their competitiveness. Page 30
  32. 32. Saved by the birth stone Why not attract FDI by advanced infrastructure that is financed from the taxrevenue instead of lowering taxes? This in the long term will provide an enhancedbenefit to the local communities and increase the flow of FDI. Government needs toimprove infrastructure rather than give tax breaks. MNC‟s are more interested in government support rather than that of thecommunity. Their only incentive for involvement in socially-responsible behavior isthe pressure of the outside world. Services to communities may be direct, but theyare not constant or something that people should rely on. Unfortunately, the taxmoney doesn‟t reach the communities, and they are happy with what the foreigncompanies have to offer. The money that does reach the communities is oftensporadic and does not usually present the most economically optimal solution.3.2. Tax initiatives Most African mineral rich countries, whose economies depend heavily onextractive industries, have lower economic growth and human development thanthose that are not so dependent on these industries. Many believe that revenues fromextractive industries serve to heighten corruption. The “resource curse” can bebroken once mining tax laws are transparent and equitable, skilled tax authoritiesare able to collect taxes, and these are distributed through a participatory andtransparent budget process. To ensure that the correct amount is collected frommining activity, and that this is spent equitably according to the country‟s agreednational development strategy, civil society organizations and parliaments need to beable to monitor and oversee the collection, allocation and actual spending of budgetrevenue. Unless there is a legal framework in place that allows civil societyorganizations, parliamentarians and citizens access to budget and revenueinformation, and unless there are laws that allow them to hold the governmentaccountable for its fiscal management and expenditure, there is no guarantee thatincome earned from mining would contribute to development and poverty reduction. There are some positive changes - in 2008 the Tanzanian governmentannounced their intention to join the Extractive Industries Transparency Initiative Page 31
  33. 33. Saved by the birth stone(EITI) initiative (Extractive Industries Transparency Initiative). EITI requirescompanies to report publicly the following:1. Revenue and profit for each concession or license2. Taxes and fees paid to the state Once communities have information on the revenue transmitted to thegovernment and other structures meant to service them, they will be able to monitorthese funds directly, instead of expecting companies to spend more on communityservices directly. Of course this initiative will have an effect if the people will have thepower to question the actions of the mining companies and their relations with thegovernment. The following problems need immediate attention as they are vital for theattraction of FDI. According to the 2009 African Competitiveness Report, the mostproblematic factors for doing business in Tanzania are:1. inadequate infrastructure (more than 70% of the firms listed “electricity” as themost serious constraint).2. inadequately educated work force3. corruption4. access to financing. (World Economic Forum, 2009) It is possible to link the third problem as the reason for the first two. Botswanaoffers a guideline to follow in fighting with the causes of corruption. As a poorcountry with vast natural resources, it has succeeded due to the following efforts:• Voice and accountability, measured via political process, and also civil libertiesand political rights – which indicate an ability to criticize those in authority when itcomes to resource extraction issues.• Government effectiveness measured by the quality of public services and thecompetence of civil servants. Its use of mineral revenue has kept an eye on animplicit self-disciplining rule – the sustainable budget index – any mineral revenue issupposed to finance investment expenditure and ensure spending on education andhealth – this is in contrast with Tanzania, where all mineral revenues go into general Page 32
  34. 34. Saved by the birth stonebudget.• Natural resource development must involve a long-term relationship with allprivate parties, while market-friendly policies like price controlled and excessiveregulatory burdens are undesirable. Mining lease are 25 vs. 10 years in Tanzania(SANGA, 2006/2007). The government holds 50% of shares in the largest diamondcompany; and the Ministry of Minerals and Water Resources has direct responsibilityfor natural resource regulation and management.• Anti-corruption policies are essential to a fair and transparent distribution ofresource benefits.If Tanzania wants to replicate this, it should start with good governance policies. Page 33
  35. 35. Saved by the birth stoneCONCLUSION When we look back and think about why Tanzania has not become ascompetitive as Botswana, it seems that the problem is not in the amount of royalties,macroeconomic factors or fiscal policies. They all trace back to the way thegovernment operates. The success of the tax reforms and revenue distribution issupported by the guarantees of the natural development law. Any successfuldevelopment is guaranteed through a dialogue of the opposing parties. Truth is bornin an argument. Botswana has secured this through civil liberties and rights of thepeople to question and challenge the actions of the government. Unfortunately, this isabsent in Tanzania, and no reforms will help the economy unless the laws areimplemented in tax revenue collection and distribution. The problems mentioned inthe Competitiveness Report can be eliminated once strict rules are in place directingthe use of the government budget. Basically, Tanzania has a monopoly on the rare gemstone, and it could chargethe companies any reasonable amount of royalties. However, new companies mayconsider that mining tanzanite is the same as mining gold and diamonds. Then, thegovernment does not have the monopolistic power. In the case of Tanzanite One,which already established operations and invested millions of dollars into the mines,it would be reasonable to impose applicable taxes, which were pardoned in the lastdecade. If the government increased royalties and taxes in the new mining contracts,coupled with a stricter tax revenue distribution, the impact of this FDI could trulybring out of poverty those who still believe in the legend of Ayanda.Update as of April 24, 2010 from Reuters“Tanzanias parliament has passed a new mining law that increases the rate ofroyalty paid on minerals like gold from 3 percent to 4 percent and requires thegovernment to own a stake in future mining projects. The Mining Act 2010 alsorequires mining companies to list on the Dar es Salaam Stock Exchange. Page 34
  36. 36. Saved by the birth stoneAs part of the new legislation, Tanzania will not issue new gemstone mining licensesto foreign companies. Current agreements with foreign mining companies remainunchanged."This bill makes comprehensive provision for prospecting for minerals, mining,processing and dealing in minerals, for the granting, renewal and termination ofmineral rights, for payment of royalties, fees and other charges and for any otherrelevant matters," said part of the legislation."The bill is a response to challenges faced and experience gained during 12 years ofthe implementation of the Mining Act ... that was enacted in the year 1998."Gemstones identified by the new law include diamonds, tanzanite, emerald, ruby,sapphire, turquoise, topaz, and others. Gemstone producer Tanzanite One (TNZ.L),will not be affected by the new ownership rules.Mining stakeholders said they will issue a joint statement on the new mining law onMonday."The government will increase revenues a lot thanks to the new mining legislation ...But, it might send a negative signal to investors and might impact foreign directinvestment. Im worried on that," Zitto Kabwe, a member of parliament from theopposition Chadema party told Reuters."We were supposed to pass a new law that balances benefits of the people and theinterests of mining companies. The mood of the day in Tanzania is that foreigninvestors are stealing from the country and this might not necessarily be the case allthe time."Governments stake in future mining projects would be determined by the level ofinvestment in each individual joint venture, Kabwe said.Tanzania earned $57 million from mining royalties in 2009, but is expected to doublethis amount after the new mining law comes into force, he said. Page 35
  37. 37. Saved by the birth stone"The main highlight of this new legislation is that it makes gemstone mining thepreserve of Tanzanians. It also changes the method of calculating royalties by usingthe gross value of minerals instead of the net value," said Kabwe.” (Hardy, 2010)Only time will show if this new legislation will make it easier for the local people toextract value from their unique stone or make the issue more controversial. Now thatTanzania will not issue new gemstone mining licenses to foreign companies, Dr.Kafumu will have to find new ways to attract FDI in the Minerals and Energy sector. Page 36
  38. 38. Saved by the birth stoneAPPENDICESTable 1. World Tanzanite Production WORLD TANZANITE PRODUCTION (in kilograms) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 eTanzania 467 1 094 2 250 1 946 5 228 5 516 5 473 6 461 4 490 3 400 3 400e Estimated; estimated data are rounded to no more than two significant digits. (Thomas R. Yager, Weight of Production of Emeralds, Rubies, Sapphires, andTanzanite from 1995 Through 2005, 2008)Table 2. Production of Tanzanite by Tanzanite One Page 37
  39. 39. Saved by the birth stone(Tanzanite One, 2009)Table 3. Ease of doing business in TanzaniaTanzania is ranked 131 out of 183 economies. Singapore is the top ranked economyin the Ease of Doing Business. Whole Africa receives less FDI that Singapore. Page 38
  40. 40. Saved by the birth stoneSummary of Indicators Page 39
  41. 41. Saved by the birth stone(Doing Business in Tanzania, 2010) Page 40
  42. 42. Saved by the birth stoneTable 4. Economic contributions by mining companies – generaleconomic indicators(A brief on the mineral sector of Tanzania, 2009) Page 41
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