Monday, July 03, 2017

Tanzania’s Bulldozer President Takes on London Miner
John Aglionby in Dar es Salaam

Tanzanian president John Magufuli was quick to live up to his nickname as “the bulldozer” after he won an election on promises of purging corruption and inefficiency.

He fired thousands of officials deemed corrupt or underperforming. Salaries that had been paid to 13,369 ghost workers were halted and those involved punished. Contracts the president felt had been awarded improperly were cancelled.

But Mr Magufuli, whom critics accuse of becoming increasingly authoritarian, is now facing an even sterner test: a multibillion-dollar tax dispute with the country’s largest foreign investor, London-listed Acacia Mining.

Analysts and investors warn the president’s combative approach is putting at risk what has been one of sub-Saharan Africa’s fastest-growing economies.

“We’re at a critical juncture,” says Ahmed Salim, an analyst with Teneo Intelligence. “How the Acacia resolution is reached will go a long way in determining Tanzania’s fate for the next few years.”

Two government commissions appointed by the president accused the miner of understating the mineral levels in its exports by 900 per cent over several years and, as a result, cheating the state of tens of billions of dollars. Acacia, which mines mostly gold and copper in the east African nation, denies the allegations.

Industry analysts say that if the commissions’ estimates are accurate, Tanzania would not only be one of the world’s biggest gold and copper producers, but Acacia would have mined more of metals such as iridium than the global annual supply.

Despite the seemingly implausible data, Mr Magufuli, who took office in 2015, accepted the commissions’ findings and fired his mining minister and the board of the government’s mining audit agency.

On Friday it was announced laws would be passed this week to allow the government to force mining and energy companies to renegotiate their agreements.

The president’s aggressive approach to rooting out corruption and government wastage initially won him widespread praise. His approval rating in a June 2016 poll by research company Twaweza was 96 per cent.

However, his rating has dipped to 71 per cent. Still high by international standards, it is 10 percentage points lower than Jakaya Kikwete, his predecessor, ever recorded in his second five years in office.

Jenerali Ulimwengu, a political commentator, says Mr Magufuli has been blinded by his own reform zeal and thirst for power.

“He’s become a dictatorial lone ranger, a cavalier, a fixer who tolerates no criticism,” he says.

In June last year the government — led by the socialist Chama Cha Mapinduzi party for the past four decades — has banned opposition political parties from holding public meetings. About a dozen people have been prosecuted for criticising the president on social media and a newspaper that linked two former presidents to the Acacia dispute was last month closed for two years.

Tax officials meanwhile have triggered widespread alarm as they make what Philip Mpango, the finance minister, admitted were “threats and harassment to taxpayers, soliciting bribes or inflating tax estimates maliciously” to meet Mr Magufuli’s ambitious revenue targets.

The president justifies his approach by saying Tanzanians should focus on the nation’s development.

Jayesh Shah, vice-chairman of the Confederation of Tanzania Industries, says the “president’s instincts are right to tackle corruption and government inefficiency because the rot was very deep”.

But he adds: “It’s the action and implementation that’s going wrong. The rule of law is very important and it’s not being respected. Investors are taking note; many have put on the brakes and some are trying to leave.”

Many banks are forecasting that economic growth, which has been above 7 per cent for almost a decade, could fall below 6 per cent this year. Credit growth has already slowed markedly. Loans to the private sector were growing at 26.8 per cent annually 18 months ago. But in May that had dropped to 3.4 per cent, according to the central bank.

The Acacia case has exacerbated investors’ unease. But Mr Magufuli has shown little willingness to back down.

“If they [Acacia] accept that they stole from us and seek forgiveness in front of God and the angels and all Tanzanians and enter into negotiations, we are ready to do business,” Mr Magufuli said last month.

Negotiations between the government and the miner are expected to start this month. Businessmen worry that unless a deal is reached, there will be an investor exodus from the resource-rich nation.

But Mr Salim believes the president is playing a bigger political game.

“For Magufuli, this [investor] concern appears to be secondary to his more pressing agenda of increasing his domestic popularity and neutralising any perceived threats from his political rivals, all in a bid to further consolidate his power,” Mr Salim says.

Observers predict Mr Magufuli’s approach might achieve his political aims and his reform drive could reduce corruption. But there is likely to be a price to pay.

“He’s going to clean things up but at what cost?” asks a financial services sector executive. “The risk is we’ll end up with a very clean and infection-free corpse.”

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