Tanzanite: The Cursed African Gemstone
               
 

This Issue Paper (IP) seeks to introduce the subject matter of the proposed study on Combating Resource Curse in Tanzania. The author, Sebastian P. Sanga, raises key arguments and gives both facts and examples of resource curse elements in the chosen topic (the mining sector) and places emphasis on the Tanzanite, the rare gemstone, which has been in deadly news in history. Finally, why the study is needed and methodology to be used has equally been contained in this article. 
  

RAMPANT resource curse continues to plunge Tanzania into deep poverty. Being one of East African countries, Tanzania is endowed with numerous resources including gold and rare gemstones like Tanzanite. Tanzanite is a purple-brown crystal that when superheated, turns into a pretty blue gem. So far, processing of Tanzanite is done outside Tanzania, mainly in India and South Africa. From India and South Africa, the gemstone is exported to different countries. But Tanzanite is an exclusive gemstone only mined at Mererani village in northern part of Tanzania. 

The stone is traditionally called Zoisite but this name was rejected by Henry Platt, the then President of the New York-based Tiffany and Company for two reasons: - That zoisite does not reflect the host, which is Tanzania, the only country that produces it. - That the word zoisite sounds like suicide, which was not good for marketing purposes. It was discovered in 1967 by Maasai people and early 1970s the gem was introduced to the market for commercial purposes. The Maasai tribes are also said to believe that Tanzanite is the stone of birth because of its blue color, and they used to give tanzanite to their wives when they have their first children. That is the only way Tanzanite was used until when Tiffany and Company decided to introduce it to the market in 1970s. Tanzanite was initially scattered in alluvial plains near the surface, but now days is found in deep mines. This gemstone, however, has recently been associated with various curses and deadly news including allegations of links to notorious networks like Al Qaeda group.

In the wake of 11 September 2001, The Wall Street Journal reported that Osama bin Laden loyalists were buying tanzanite, smuggling it out and selling it to finance the Al-Qaeda organization. Reference to tanzanite Al Qaeda link emerged in the 1998 trial of Wadih El Hage, a Lebanese-born resident of Arlington near Dallas. Prosecution authorities described him as Bin Laden's personal secretary. He was sentenced to life imprisonment after being convicted of conspiracy in the 1998 bombings of the US embassies in Kenya and Tanzania. According to the journal, Hage kept traveling to Europe and the United States in the mid-1990s, trying to sell tanzanite. Given the fact that about 90 percent of tanzanite is sold through the parallel markets, it is no wonder that many different people and groups, including smugglers and terrorists, have attempted to exploit the situation. Tanzanite has experienced curses making it a really cursed gemstone in history. This stone was supposed to be a messiah to Tanzania, in terms of foreign currency earnings and contribution to Gross Domestic Products (GDP) for poor Tanzania.

The link of Tanzanite to Al Qaeda group is just a symptom of the problems facing the Tanzanite industry and the mining sector at large. Smuggling and corruption relating to investment in this sector partly explain why the resource curse might be significance in Tanzania, the country which was a former colony of Germany and Britain, thereafter. The late Julius Kambarage Nyerere took administration from British in early 1960s. He handed the country to his successor Ali Hassan Mwinyi. After Mwinyi came Benjamin Mkapa. Mkapa whose focus has been to open the mining sector to foreign investors retired last year paving the way for the current President Jakaya Kiwete to take the office since November 2005.  He comes in the office at the time when resource curse is an issue in Tanzania.
This Day, a Tanzanian local publication says that resource curse in the mining sector and for Tanzanite is shame of the nation. The mining of tanzanite nets the Tanzania government approximately USD $20 million annually, the finished gems later being sold mostly on the US market for sales totaling approximately USD $500 million annually. In addition, Kenya which has no tanzanite, has been exporting more tanzanite than Tanzania. US, India, South Africa, Germany, Israel, have been controlling Tanzanite that reach world market through miraculously channel. The gemstones pass through many hands on the journey to fashionable retail stores like Tiffany’s in the United States and elsewhere.   
Efforts by Tanzania to reform the mining sector have not solved the resource curse anyhow. Tanzania embarked on economic reforms restructuring between mid 1980s and the 1990s. These reforms made a clear shift in favour of private sector development and market-oriented economic management. The reforms are in line with the Mineral Policy of Tanzania 1997, Mineral Act 1998 and Fiscal Package 1998. Currently the country has mining investment worth over US$1billion and boasts several mines in operation, producing over 1,500,000 ounces of gold worth more than US$400 million annually (Mbilinyi 2004). Several countries have taken the advantage and they are investing heavily in the mining sector. They include South Africa’s AngloGold and London-based Ashanti Goldfields, sharing the Geita deposit, Gold Pride mining company in Nzega, Diamond mining company and TanzaniteOne, which is in Tanzanite. Of course there is other companies dealing in Tanzanite, but TanzaniteOne, is the largest one in this sub-industry.  The firm has created jobs to over 100 people.

The paradox here is that despite that mining is the fastest growing sector in Tanzania’s economy, but only represents approximately 3.2 percent of the country’s GDP.  The sector grew by 15.7 per cent in 2005 compared with 15.4 per cent in 2004, contributing 3.5 per cent and 3.2 per cent to GDP respectively, although revenue accruing is very minimal. In 1990s the sector was contributing less than 2 percent in the GDP. Despite recent growth, its effects on poverty are very minimal. The Minister for Planning, Economy and Empowerment, Juma Ngasongwa, says the government has formed a special committee to undertake an in-depth evaluation of why the revenue accruing from mining activities is so small.  In 2005 Tanzania was said to be Africa’s third largest gold producer behind South Africa and Ghana. The report by researchers including the TOMRIC News Agency (TONA) suggests that mining would have been the messiah for Tanzania, the country which faces critical poverty-related problems. Despite efforts made by the government to introduce radical reform, the sector seems not helpful in terms of poverty reduction. In his research paper on the Impact Assessment on Mining sector: Perspective from Tanzania, Professor Raphael Mwalyosi concludes that for Tanzania, contribution of the sector to the economy is clearly very minimal. The Bank of Tanzania has recently also claimed that the contribution of the mining sector to the GDP has remained low because the sector has not delivered the expected results.

Many social indicators in Tanzania are comparable to or better than those in countries with the same income level. However, there are indications of a high degree of deprivation with respect to health standards, food security and education attainment. The infant and under-five mortality rates are, respectively, 86 and 133 per 1000, while life expectancy is around 49. Malnutrition affects 44 percent of children and access to safe water is around 50 percent. The adult illiteracy rate is 28 percent and the net primary school enrollment rate is about 57 percent. Generally over 50 percent of the families spend less a dollar daily.

Claims over causes of resource curse in mining are many and they include issues like leniency of the investment agreements (too soft on the mining industries and the degree of illicit plundering going on (smuggling theft). Despite receiving a US$10 million World Bank loan a few years ago to speed-up and clarity licensing procedures, mining sector regulation remains poor. Risks particularly for small and medium investors, who are essential for balanced mineral sector development, are considerable. Worse still, there have been disputes over Tanzania’s natural resources, which are also affected by corruptly system. Poor governance has been the case in every step of handling the sector and in some cases blunders in making agreements and key decisions have been seen vividly. The case in point was the decision by the government to use mining to finance military procurement outside the budget, by forming Military mining firm, Meremeta. Meremeta, a joint venture between the Ministry of Defense and South African investors, was set up for this purpose, but collapsed leaving the Ministry US$130 in debt. How much Meremeta is in fact realized from gold sales and what happened to the money, is still unclear, says Brian Cooksey, a seasonal researcher in his policy exchange paper (www.policyexchange.org.uk). 

Areas in which corruption is rampant include government procurement, privatization, taxation, ports, customs clearance, police forces and including agencies handling FDI, especially in mining sector. Transparence International has consistently rated Tanzania as one of the worst countries in the world for business practices. Minweb, one of online information providers, has once reported that Tanzania does not even know the amount of minerals produced in a particular mining area, a situation that provides loopholes for companies to cheat. Some companies even cheat not only in terms of amounts of minerals still underground, but also the completion period of reserved minerals.

This has made, the mining sector, in which Tanzania has a comparative advantage fail to play positive role in poverty alleviation campaigns, mainly due to poor government that have plunged this resource into curse. Behind the fracas are political elites and their cronies. They continue to solicit kickbacks at every opportunity, especially in the process to approve, administer and monitor Foreign Direct investment (FDI). Corruption is one of the major difficulties encountered by investors in the country and the route cause, as per different actors, is poor governance. Since 1995 Tanzania has attempted to curb corruption but in vain. The steps include the formation of Presidential Commission of Inquiry Against Corruption that requires all political leaders to declare their assets, firing public servants on suspicious of being corrupt and strengthening the Prevention of Corruption Bureau (PCB). The Cabinet position of Minister of State for Governance in the President’s office was also created in 1995-2005, charged with among others, responsibility of fighting corruption. These initiatives have, however, not addressed poor governance, especially in handling FDI in mining sector.

The aim of this study is to investigate and examine level and causes of resource curse and initiate pro-poor policy changes for improving governance in handling the mining industry, especially investments in the sector. Emphasis will be placed on FDIs. In all cases, to be studied include governance systems in mining industry and its institutions. Evaluation on mineral policy, mineral act and fiscal package, is part of this study. This is to broaden the scope of anti-curse strategies, providing governance institutions in the public, local governments, public sector, civil society and faith organization, be alerted to engage in the process. This study expects to finally recommend measures towards improving governance in both a policy paper and the entire publication of findings. There are at least five set of questions in this study. They include why crisis in the Tanzanite industry, how and why Tanzanite has been linked with Al Qaeda Group, Is it Al Qaeda link which curses the Tanzanite or just syndicate of dealers like Mafia group, to what extent poor governance in handling FDI is contributing to curses of Tanzanite alongside other minerals and, last which could be the policy options to address the entire problem? The central hypothesis is that poor governance is the central setback.    

Finally, this fuller research considers the installation of good governance as an optimal tool to overcome resource curse in mining for Tanzania. It does not claim that this is the last and only option, but believes that more alternative options would be established in the study. Another possible option might be deciding to involve sector case, especially from Botswana. This research aim to turn this problem into an issue and influence stakeholders and the public to fight the vice after making thorough investigations, analyzing investment, studying administrative or institutional systems, policies, contracts and procedures in handling FDI. It is planned that advocacy and information dissemination campaigns will thereafter be launched to share the findings.