GBR speak to Clyde and co about their involvement in Tanzania’s mining sector.
PK: Clyde and Co is a law firm with 33 offices around the world. We are focusing on Africa for the next few years, and have been in Tanzania for the last 20. In reflection of our interest in Africa, we had an association with Ako Law, a Tanzania firm, for the past seven years before opening a full Clyde and Co office. For a big international firm we have invested an unprecedented amount in our infrastructure here. We employ multi-skilled and multi-jurisdictionally qualified lawyers; our identity as a Tanzanian firm, run by young, talented Africans, is very important to us and reflects the new Africa. A key principle is that all of our Tanzanian lawyers have to travel to an international office. With 20 staff, we are one of the biggest law firms in the country.
What is your involvement with the mining sector in Tanzania?
PK: It is almost impossible to be in Tanzania and not have mining clients. Clyde and Co typically serves junior miners from Australia, Canada and elsewhere, but we are also hired by mining services companies – providers of logistics, equipment and insurance. Clyde and Co is also probably the world’s biggest insurance law firms. We therefore follow insurance clients into the mining sector. We have previously also done some government advisory work and, because ours is one of the pre-eminent tax practices here, served the Tanzanian Revenue Authority as well as the private sector.
What are the biggest obstacles to doing business encountered by the junior exploration companies you serve?
PK: Governmental registries can be difficult for juniors here, for example, the companies registry and the land registry. The legislation has been dealt with very well; there is a clear Mining Act but, as always in Africa, implementation is the issue. African countries need to make it easier for people to walk into a registry, see clearly the details of their asset, and conduct any searches they want to make. When it takes two months to establish a company, it brings inefficiencies all the way down the chain. What Africa needs is technical assistance to improve its institutions. Just something like computerizing the judicial system can take away low-level corruption. There aren’t many computers at the Business Registrations and Licensing Agency in Tanzania, so files occasionally get lost and it is very difficult to obtain accurate search reports.
Tanzania has not been immune to the global mining downturn. How have you seen your junior clients responding to the challenges?
PK: There appears to be limited access to finance at present for early-stage mining activity, and it has a knock-on effect on us. Rather than front-end development, we are seeing a lot of back-end work: litigations, tax problems and so on. On occasion, Clyde and Co is helping companies look for interim financing; sometimes they can find development finance export credit agencies or aggressive regional banks looking for assets that may become viable in future. This is where our international network helps.
There are fears that the recent increase in exploration licensing fees will force the few local juniors out of the market. Does Clyde and Co have any experience working with the local sector, and how do you think this will affect it?
PK: At present there are several small Tanzanian companies sitting on an asset they want to sell as an option to a larger entity. We are seeing even more of this than before because those who do want to develop the asset themselves cannot afford to. This is a negative consequence, and the fees need to be looked at. It comes back to the institutions needing more funding. Obviously the government wants to raise more revenue, but it would be better to give the industry time to recover.
The government has increased mining taxes from 3% net profit to 4% gross value, and there is also a new corporate tax on mining companies. How will this affect the industry?
PK: In general, mining companies with a real interest in a country will stick with it regardless of current prices, but not when they are being constrained elsewhere. I am therefore not sure this was the right time to change the tax regime. Some of the juniors who we want to push the industry forward will not be able to survive. One problem is the managements of a lot of these companies, especially the Australian ones, change often, which makes it difficult for them to have consistent relationships with the government.
You have done a lot of work with public-private partnerships (PPPs). What is the outlook for upcoming partnerships that can assist the mining industry?
PK: Mining companies with decent assets often need reliable transport (road, rail etc), and in its recent budget Tanzania has highlighted the need for better roads, rail and telecommunications. The 2011 PPP Act was a great idea. It is being led by the Tanzania Investment Centre’s PPP unit, but I question whether the institutional framework here has the capacity to manage several PPP projects from start to finish. They require quite a lot of manpower and have several stages before tendering. I am concerned about the speed of implementation, and the enforcement of the Act.
A lot of companies are putting their hopes in Asian sources of financing. What role are you expecting Asian investors to play in Tanzania’s mining sector?
PK: There is increased interest in Africa from Asian investors, who were previously quite risk averse when it comes to Africa. These investors require a lot of entry-level legal support. However, as in the rest of Africa, we should distinguish between China and the rest of Asia; Chinese investment is much more direct, driven through its embassy and direct links with African governments. The outlook is generally good, especially for the Chinese who receive a lot of support from bilateral government agreements.
Can excitement over oil and gas bring about the long-awaited development of a local service sector?
PK: There was early hope that local providers could feed into the market, but ultimately it was business primarily from South Africa with the necessary technical expertise who came in. Discussions about local content are on the horizon, and this could be a way to ensure local businesses are at least part of the process.
What is your medium-term outlook for the mining sector?
PK: I am cautiously optimistic about the mining sector. Many investors have started taking a cross-sector approach with a basket of investments in oil and gas, mining, telecoms, infrastructure. Clyde & Co Tanzania supports those clients, but we are also sticking with our uniquely mining focused clients. Tanzania has still got great mining potential.
This interview was conducted as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.