Canada’s Fraser Institute
Chamber of Mines
Fraser Institute
Moses Njeru

Kenya, Tanzania mining reforms earn them poor investor ratings

Just when Kenya and Tanzania are undertaking reforms to ensure their mining sector plays a central role in economic growth, a report by Canada’s Fraser Institute has cast a dark cloud on its attractiveness, after ranking them at the bottom of the pile.

According to Fraser Institute, which is a leading think-tank that shapes public policy and influences private sector decisions through its research, Tanzania is the fourth least attractive destination in Africa and ranks at position 78 out of 91 countries globally.

Dar’s ranking has dropped from 59 out of 104 in 2016, attributed to increasing concern among investors over uncertainty regarding the administration, interpretation and enforcement of existing regulations, trade barriers, and security.

“Legislative changes in Tanzania, which are being retrospectively applied, undermine the sanctity of contracts and remove recourse for international arbitration to resolve disputes with the government. This creates uncertainty and instability and makes for a particularly hostile investment environment,” says the report.

Industry players say that the poor ranking of Kenya and Tanzania, which have been at the forefront of implementing initiatives to drive growth of the mining sector, is an indication that the reforms do not resonate well with investors.

“The index tells policy makers that investors do not consider East Africa a destination to put their money in, largely because the regulatory environment is not friendly,” Moses Njeru, Kenya Chamber of Mines chief executive officer, told The EastAfrican.

The two countries want mining revenues to contribute at least 10 per cent of GDP from less than one per cent for Kenya and 3.5 per cent for Dar.

The regulations stipulate that foreign companies investing at least $100 million must list at the stock market to allow Kenyans to benefit from the minerals and to check the mass repatriation of revenues.

But foreign investors say they are already overburdened by the capital-intensive exploration activities, the lack of critical seismic data, forcing them to undertake their own surveys; the steep compensation to landowners and the requirement that they invest at least 1 per cent of their capital in community development.

The laws seek to increase mining taxes, force companies to renegotiate their contracts, allow the state to own up to 50 per cent shares in mining companies, ensure mining companies invest in local smelters to add value to the raw minerals, create jobs as well as stamp out corrupt practices and tax evasion.

According to the Fraser index, although geologic and economic evaluations are always pre-requisites for exploration, a region’s policy climate has taken on increased importance in attracting and winning investments in today’s globally competitive setup.

This is because 40 per cent of investment decisions are determined by policy factors while the remaining 60 per cent are based on the assessment of a jurisdiction’s mineral potential.

The index ranks Finland as the most attractive destination in the world while Ghana is ranked as the most attractive in Africa at position 22 globally.

Guatemala is the least attractive jurisdiction in the world for investment. Also at the bottom (beginning with the worst) are Kenya, Argentina, Mozambique, Bolivia, Venezuela, Romania, China and Nicaragua.

Ethiopia, which has seen its once promising mining sector plummet due to a rise in illicit trade and political instability, was also ranked among the worst destinations in Africa after Kenya and Mozambique. Globally, it was ranked at position 81 out of 91 countries.

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