Luckystar Miyandazi, ECDPM paper, June 2019
The issue of illicit financial flows (IFFs) in the mineral sector of African countries has been the recent focus of African regional and national policy discussions. Research and analysis by institutions like the African Union (AU) and United Nations Economic Commission for Africa (UNECA), aimed at building an understanding of IFFs, is still ongoing. The shocking preliminary results of this analysis have led many resource-rich African countries to blame IFFs for the low tax revenue from the resource sector, citing elements of tax evasion and tax avoidance. One such country is Tanzania, one of Africa’s most productive gold mining countries.
This paper highlights the influence that the continental IFF agenda has had on Tanzania. The country has made headlines over the past four years for the president’s zeal in dealing with mining companies and their IFF practices. These companies have been named and shamed and, some have even had to pay substantial amounts of assessed tax bills as a result of legal action and lengthy negotiations. This might be a positive indication of the kind of vigour that needs to be employed in transforming the sector. Conversely, such vigour should not result in driving out much needed foreign direct investment (FDI). In practice, balancing these needs is complicated.
The paper shows that Tanzania has started to implement the High-Level Panel on Illicit Financial Flows from Africa’s recommendations. However, further analysis is needed. It also shows that consideration of the effects on employment and investment flows is vital to prevent an adverse impact on the country’s economy. The paper specifies where exactly IFF takes place within the mining value chain, emphasising that some policies, if aptly targeted at specific stages, might be more effective and better meet revenue collection objectives. Finally, the paper provides evidence-based ‘takeaways’ that could improve the policy and institutional environment.
Photo courtesy of The International Institute for Environment and Development via Flickr.