New Tanzanian Mining Law Requires 50% Local Public Ownership

News From The East African

A new mining law, requiring foreign-owned companies to cede a 50 per cent stake to the public in Tanzania, is threatening to cripple the thriving $500 million Tanzanite gemstone business.  One company, TanzaniteOne, has rejected a demand by the government to relinquish half of its shares to the State Mining Corporation (Stamico), setting the stage for a major dispute.

TanzaniteOne, a multinational listed on the London Stock Exchange, said it could not dispossess its investors of their shares.  Instead, the firm, which extracts Tanzanite in the Mererani Hills, about 40 kilometres southeast of Arusha, offered to offload 20 per cent of its shares through an IPO at the Dar es Salaam Stock Exchange Executive chairman Ami Mpungwe said the firm’s shareholders comprised institutions like pension funds, whose interests could not be taken for granted. They could not be dispossessed of their shares through a “simple announcement.”  But Mr Mpungwe said the company was negotiating a solution with the State.

The new Mining Act of 2010, which became effective this year, requires foreign-owned companies to cede 50 per cent of their stake to the public or lose their mining permit.  The matter is urgent for TanzaniteOne, as its licence expired in August 2012 and the government is threatening not to renew it until the firm surrenders the 50 per cent shares.  Deputy Minister for Energy and Minerals Stephen Masele told The EastAfrican that the firm must relinquish the stake to Stamico as a precondition for renewing its operating licence.  “The company wants the state to buy the shares, but our position is that the firm ought to offload the stocks to Stamico free of charge or else lose the licence,” said Mr Masele.

The new law stipulates that gemstones will be exclusively mined by Tanzanian nationals, unless the mining requires heavy investments and sophisticated technology, where foreign investors will be allowed, but on condition they offload 50 per cent of their shares to the public.  Lusekelo Mwakalukwa TanzaniteOne corporate governance manager told The EastAfrican that the company has invested heavily in its designated mining block and has just started to realise profits.  He adds that the firm has also been paying revenue, including corporate taxes, royalties and other related income to the government.

Increased production

Bernard Olivier, chief executive officer of Richland Resources, which owns TanzaniteOne, says production at the   mine is still rising at a record 2.4 million carats in 2011 with decent grades.  The firm employs 650 people and has paid $26 million in tax over the past five years.C  ash costs per carat are rising too, however, from $1.41 a carat in 2005 to $3.69 in 2010. While the company made a $6 million profit in 2008, today that figure is less than $1 million. Mr Olivier says prices are still 20 per cent below those of 2008.

TanzaniteOne, operating in an eight square km block ‘C’ tanzanite site, planned to produce and export 2.5 million carats worth $24 million in 2012.  Records show that TanzaniteOne has invested over $100 million, but analysts say the company has provided marginal contributions to the communities surrounding its area of operation.  “I don’t see a significant impact of TanzaniteOne’s investment on nearby communities,” said Dr Gasper Mpehongwa, a lecturer in development studies at Tumaini University.  However, records show that TanzaniteOne provides over 2,000 villagers and 4,500 cattle with water at Neisinyai village in Mererani Hills.

The Mauritian Economic Miracle

SADC Trade, Investment and Integration

EAC: U.S. Counters with New Trade Pact

By Business Daily

Kenya and other East Africa economies could witness a huge inflow of investment and development support as the US moves to counter the gains made by the EU and surging Asian nations such as China and India. The US said it is crafting a new incentive-laden trade and investment treaty for the East African Community (EAC), which it has identified as a potential hub to host its regional business interests.

The proposed treaty would mark a major shift in America’s engagement with the region, which at present is anchored on a simple Trade and Investment Agreement (TIFA) signed with the EAC in July 2008. The TIFA’s main role is to strengthen the US-EAC trade and investment relationship, expand and diversify bilateral trade, and improve the climate for business between the two blocs. The framework further seeks to bolster partnerships in initiatives such as the African Growth and Opportunity Act, the World Trade Organisation’s Doha Round of negotiations, trade facilitation and skills building.

The US, however, said it was now pursuing a full treaty with the EAC, just six months after China signed a TIFA with the EAC to promote commodity trade, tourism, investment, infrastructure development and training.

“It is great that other parties such as China are looking more to East Africa and that shows the region has huge potential,” said Mr Camunez US Assistant Secretary for Commerce. “We however cannot hide the fact that America is also interested in the region.  ”China is particularly active in the construction and infrastructure development sector in East Africa and has since branched into other key economic areas such as manufacturing. “I’ve witnessed first-hand the skyrocketing level of investment that has come into Kenya from other parts of the world such as China, India, the Gulf region and elsewhere,” he said. “It’s easy to see why American exporters and investors simply must be more fully engaged.”

To claw back America’s influence in East Africa, President Barack Obama’s administration has taken on a fresh campaign to press for new trade and investment partnership with the bloc. “The proposal calls for the negotiation of a regional investment treaty, the creation of trade enhancing agreements in areas such as trade facilitation, and importantly the establishment of a new commercial dialogue that will facilitate engagement between public and private sectors,” the US official said. Mr Camunez said as part of the deal the US will press for good governance in key areas such as procurement and the adoption of asset protection and intellectual property rights enforcement policies. “We are hopeful that our proposed regional trade package will be accepted by Kenya and the greater EAC and we look forward to deepening our engagement here,” he said.

“Kenya is extremely well positioned to capitalise on this momentum. It holds great potential, enormous opportunity and extra ordinary promise and is a critical hub for American companies in Africa and it offers an important platform and hub for doing business in the continent,” Mr Camunez said.

Kenya hosts more than 60 US firms including giants like General Electric, IBM, Citi, Dow Chemicals, farm machinery maker John Deer, Google, Microsoft, Corn Products, General Motors East Africa and Coca-Cola.  An audit by consultancy firm, Ernest & Young showed that the US was the highest source of new foreign direct investment into projects in Kenya between 2003 and last year.

This move by the US is not surprising. Apart from the EAC-China agreement, we should not forget the EAC EPA with the EU which was initialled, remains unsigned and is still yet to be concluded.

EAC Stockbrokers Adopt Compulsory Certification Training

Both the East African Securities Regulatory Authorities (EASRA) and the East African Stock Exchanges Association (EASEA) have agreed that professional Capital Market employees will be required to take a certification course, whose curriculum the two bodies have agreed on. The certification aims to standardise qualification requirements for key market activities in the EAC such as trading, asset management, and investment banking. Since certification is being implemented at a regional level, it should be standardised and ideally recognised globally, which allows a graduate to work anywhere. In this regard, the EAC Common Market Protocol under Part D on Free Movement of Persons and Labour, provides provisions on Harmonisation and Mutual Recognition of Academic and Professional Qualifications (Article 11) and hence an advantage of the certification training is that certified staff in the EAC can work in other EAC stock exchanges.

This is also important because the EAC Common Market Protocol (CMP) provides for the Free Movement of Capital in Part G Articles 24-28. Certification is therefore also important with regard to regional integration and capital account liberalisation. The CMP provisions provide for the elimination of Restrictions on the Free Movement of Of Capital which are reflected in Annex VI (Schedule on the Removal of Restrictions on the Free Movement of Capital). The Schedule contains commitments in equity and portfolio investments, bank transactions, repatriation of proceeds from sale of assets and other transfers and payments relating to investment flows.

Formal certification procedures will also help the market players to have a clear understanding of market regulations and the requisite qualifications to perform their responsibilities. It is acknowledged that a lack of properly qualified staff and fraudulent trading of customers’ shares was blamed for the collapse of Kenyan stock brokerage firms between 2007 and 2010.

Scheduled courses under the programme include fundamental securities, market participants training, officers and directors course. The certification course was agreed upon during an EASRA consultative meeting that was held in Bujumbura, Burundi, in March however, rules on frequency of training, examinations and those to be exempted based on other courses taken are yet to be finalised.

There are, however, other programmes in the region that have been running on a voluntary basis and without certification such as those run by the Securities Industry Training Institute, which is based in Kampala.

The most outstanding achievement in terms of EAC capital markets integration so far has been the cross listing initiative that has made it possible for seven, five and three companies to cross list from the NSE to the USE, DSE and RSE respectively. A road map for the integration of the EAC capital markets has also been developed to guide the integration process in the EAC capital markets industry in light of the EAC Common Market Protocol and in preparation for the proposed East African Monetary Union.

Related information can be found on Business Day

EAC Common Revenue Management Model

Traders have blamed payment of taxes at every border point for increased cost of doing business. Border delays and the absence of laws to settle disputes and promote integration have also been cited as hindrances to the opening up of trade in East Africa. 

Well thats about to change.

The East African Community (EAC) 5 Heads of State have endorsed a revenue management model where tax will only be collected at the point of entry and imported goods transported to the final destination without stopping at national border points for customs charges or inspection. 

This approach is similar to that used in the South African Customs Union.

The decision raises hope for a speedy formation of a regional customs authority that would handle the smooth flow of goods across borders — handing traders an opportunity to save up to 15 per cent in extra transit costs that come with delays.

“The Summit adopted in principle the destination model of clearance of goods where assessment and collection of revenue is at the first point of entry and revenues are remitted to the destination partner states subject to the fulfilment of key pre-conditions to be developed by the high level task force,” the heads of state said in a communiqué at the end of a recent regional summit in Arusha.

Though the EAC launched its customs union in January 2010, disagreement over collection and sharing of revenue has frustrated efforts to establish a regional customs authority, slowing down cross-border trade. “We hope the decision brings some change this time by ending the controversy that has been with us for three years now,” Peter Njenga, a logistics officer said.

Kenya has been particularly reluctant to adopt the model that would see the Kenya Revenue Authority (KRA) lose control of close to 35 per cent of its present annual collections. Some member states want the revenue be used to finance projects of common interest such as roads or power generation.

However, Kenya has further hardened its position as it would mean losing a large proportion of tax collection at a time when it faces huge budgetary challenges as it implements the new constitution.

In Nairobi, opposition to a regional customs authority has also come from the port of Mombasa, a key entry point, with Kenya Ports Authority maintaining that extending the facility’s function to include collecting customs revenues will further delay the discharge of cargo given the current levels of congestion.

The setting up of a common revenue authority for the EAC has also been delayed due to the fact that Burundi had not fully emerged from the ravages of a civil war and required time to set up sound national institutions to manage public finances.  For instance in 2008, just one year after it joined EAC, Burundi became the only country in the region to ever report loss of revenue from free movement of goods under the customs union protocol.

This position has since changed with the Burundian President Pierre Nkurunziza recently saying the country is ready for higher stages of integration after hiring the services of Trade Mark East Africa (TMEA) to set up new revenue administration institution—Office Burundais des Recettes.

Article From Business Daily 

South Africa's Skills Shortage Dilemma

There is no doubt that the conundrum of an acute skills shortage alongside mass unemployment constitutes the most critical issue threatening the future of South Africa. This year the country has recorded a growth rate of 2.7% and the unemployment rate is about 33%, including those who have given up looking for work. Seventy percent of those unemployed are said to be under the age of 35. A woman leaving school in Limpopo stands a one in eight chance of ever getting a job. 

The skills shortage and high unemployment interact with each other in a devastating way. It is insightful to note that SA’s key problem is how it is going to maintain the growth rate it needs to feed its growing population. SA won’t be able to use the method employed by the Southeast Asian ‘tigers’ of using cheap labour to undercut its export competitors while it grows its economy and expands its skills base, because its labour unions will prevent that.

One solution is to develop a skills-training model based on systems that have been used for years in Germany, Switzerland and several Scandinavian countries. This would involve not only vastly improving the education system but also integrating it with a system of apprenticeships. 

The essence of the German education system is that it is channelled into different streams. There are three streams, actually, but for our purposes we need focus only on two — an academic and a vocational stream. Students should be given a choice, after passing, say, grade 9 or 10, whether they want to continue in the academic stream and go on to university, or learn a vocational skill through an apprenticeship programme. 

Those who drop out of high school earlier should also have the opportunity of entering an apprenticeship course. 

These apprenticeships should be wide-ranging, from becoming a skilled baker or hairdresser, to a motor mechanic, a construction worker or an electrician. A student deciding to enter an apprenticeship must find an employer who will take him or her on to train for the career the individual has chosen — which is usually three years. 

During that time, the student will spend part of his time gaining practical on-the-job experience working for the employer, and part of it attending classes at a vocational school. The classes will focus mainly on the technical side of the job; the shop-floor work on the practical side. Running records have to be kept by both the employer and the vocational school instructors so that the training can be co-ordinated. 

The apprentices are paid a small salary throughout the apprenticeship period, which usually goes up a little each year as their skills advance. At the end, they have to write an exam run by the Chamber of Commerce and Industry. When they pass that they are qualified as a skilled professional in the chosen work category — and receive a certificate testifying to that. 

School-leavers in SA today have no craft certification of any sort, which makes getting that critical first-time job in the face of sceptical employers faced with labour regulation requirements cruelly difficult. 

However salary is the thing that troubles the trade unions. 

But the suggestion of how to get around this political problem is to enact a law establishing that the apprenticeship period falls under the Department of Education, not the Department of Labour. 

The Congress of South African Trade Unions actually recognises the need for on-the-job training at lower pay, but it has become so entrenched in its commitment to the principle of "decent work" that it can’t lose face by backing off from it. 

Classifying an apprenticeship as part of an individual’s education may be a way around that difficulty, because the labour regulations could remain unchanged and become applicable to the apprentice only after he has graduated from his apprenticeship. 

A further advantage of the German system is that, after successfully completing a full apprenticeship course, a student can continue at the vocational school for another year or two to acquire higher certification as a "master" baker, mechanic or whatever, which rates as the equivalent of matric — thus opening the way to go to university and, beyond that, to a graduate school of business for an MBA. 

SA's graduates would then be able to seek a job in management with the special advantage of knowing what life is like for workers on the shop floor and earning their respect in turn for having that knowledge. 

Flexibility is the essence of any such system, so that German students from the academic stream can also switch to become apprentices after passing matric if they so wish, enabling them to follow the same route to a job in management. 

SA is going to need skilled workers every bit as much as she needs to reduce the unemployment rate. 

Original Article by Allister Sparks: Business Day

Geographical Indications Bill Kenya

Business Daily reports that Kenya's Industrialization Ministry along with the Kenya Industrial Property Institute (KIPI) are currently reviewing the Geographical Indications Bill (GI) which will provide a legal framework for safeguarding products like tea, coffee, and handicraft by expressly attributing them a sign or appellation of origin.

A geographical indication is a sign used on goods that have a specific geographical origin and possess qualities, reputation or characteristics that are essentially attributable to that place of origin. Most commonly, geographical indications include the name of the place of origin of the goods such as agricultural products which typically have qualities that derive from their place of growth/production and are also influenced by specific local factors, such as climate and soil. Geographical indications may be used for a wide variety of products, whether natural, agricultural or manufactured.

Meanwhile an appellation of origin is a special kind of geographical indication. It generally consists of a geographical name or a traditional designation used on products which have a specific quality or characteristics that are essentially due to the geographical environment in which they are produced.  The concept of a geographical indication encompasses appellations of origin.

Whether a sign is recognized as a geographical indication is a matter of national law and as such geographical indications are protected in accordance with international treaties and national laws under a wide range of concepts, including trademark laws in the form of collective marks or certification marks, laws against unfair competition, consumer protection laws, or specific laws or decrees that recognize individual GIs.

The GI Bill is expected to help certify Kenyan products and market them exclusively in the speciality market, a strategy that will help distinguish Kenyan goods from those of other countries.  The likely scenarios once the Bill is enacted include marketing of origin-specific Kenyan exports such as Kericho tea, Mt Kenya coffee, Maasai jewellery, and Kisii soapstone carvings.

The draft GI Bill also proposes that producers and regulatory firms can apply to be custodians of a location specific trademark. Thus, the Kenya Tea Development Agency may apply to register tea variety trademarks.  Certification trademark of Kenyan products will avoid situations where foreign parties attempt to register such goods in other countries.

GI's are protected at the international level through a number of treaties mostly administered by World Intellectual Property Organization WIPO which provides for the protection of geographical indications, most notably the Paris Convention for the Protection of Industrial Property of 1883, and the Lisbon Agreement for the Protection of Appellations of Origin and Their International Registration. In addition, Articles 22 to 24 of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) deals with the international protection of geographical indications within the framework of the World Trade Organization (WTO).

Meanwhile Article 43 of the EAC Common Market Protocol has provisions on co-operation in Intellectual Property Rights of which geographical indications are included (Art 43.2(f)).

New Database On Global Value Supply Chains

The European Union has launched the new "World Input-Output Database" which allows trade analysts to assess the global value chains created by world trade. These added-value chains have become an essential feature of economic reality as trade is becoming increasingly globalised as today's traded products are not produced in a single location but rather are the end result of a series of steps carried out in many countries around the world. Instead of counting the gross value of goods and services exchanged, the new database reveals the value added embodied in these goods and services as they are traded internationally. The findings are significant as they change the perception of the competitiveness of certain sectors in some countries. 

In addition, policy makers and societies at large are facing increasingly pressing trade-offs between socio-economic and environmental developments. Increases in production induce growth in the use of non-renewable resources such as fossil fuels, materials, land and water. Furthermore, they generate higher levels of waste and emissions of environmental pollutants. Simultaneously, increasing global integration through international trade and technological developments creates a tension. In this regard, the database considers satellite accounts with environmental and socio-economic indicators, from which industry-level data can provide the necessary input to several types of models used to evaluate policies aimed at striking a suitable balance between growth, environmental degradation and inequality across the world.

Karel De Gucht, the EU commissioner for trade has said that the change in statistical accounting for trade applied in the database has been developed to determine the consequences of the fragmentation of supply chains. For example a third of world trade happens within firms while two thirds of European imports are not of final products but of intermediate goods and raw materials, to which EU firms add one or more layers of value before they are finally sold, often for export.  The EU trade commissioner gave the example of a Nokia smartphone, "it is listed as being made in China, but in reality 54% of its value comes from tasks that are carried out in Europe. Key components are produced in other parts of Asia and only the assembly itself actually happens in China.  Today, we measure trade by counting the total price of the good that is being exported or imported, but because we do this both for components and for final products we get a distorted picture of what is really happening.  Hence according to the database, when we look at trade in value as opposed to traditional statistics, EU trade deficit with China is reduced by 36%. In 2011, the trade deficit between the EU and China stood at EUR155.9 billion however using this new method China-EU deficit starts to look like less of a problem."

On services, interestingly when looking at trade in supply chain terms,  the classic distinction in trade policy between goods and services is increasingly artificial. This is because services represents almost 60% of the value European firms add to the products exported from Europe. 

The database covers 27 EU countries and 13 other major countries in the world for the period from 1995 to 2009. It is notable that not a single African country is included in the database which possibly says something about Africa's non-participation or rather minuscule contribution to global supply chains. In addition, all BRICS economies are included in the database with the notable exception of South Africa.  One wonders why the EU wants African countries to eliminate export taxes (under the EPAs) when in essence the contribution of African exports to global trade and supply chains is too insignificant to be in included in the database.

African countries generally export largely raw materials (e.g fuels, metals) and some agricultural products to the EU and generally lack capacity to add value domestically especially for manufactured products. Other supply capacity barriers to Africa's participation in global value chains include limited foreign ownership and lack of global networks which are a significant factor in characterizing the intensity of global exports but not necessarily for regional exports. The lack of technological advancement is also a significant barrier especially in global exports. Public infrastructure constraints, such as inferior power services and customs delays, seem to have more immediate impacts on regional exports as does customs efficiency and poor trade facilitation which is also hampers the competitive participation of African producers in global supply chain industries. 

In a related article, we saw that China overcame similar challenges by exploiting joint ventures.  China allowed foreign firms access to the domestic market in exchange for technology transfer through joint production or joint ventures. In fact, 100% foreign owned firms were a rarity among the leading players in the industry in China, unlike Export Processing Zones in Africa. China’s openness to foreign investment and its willingness to create Special Economic Zones (SEZs) where foreign producers could operate with good infrastructure and with minimum hassles must therefore receive considerable credit. However if China  welcomed foreign companies, she always did so with the objective of fostering domestic capabilities.

EAC/EABC Monitoring of NTBs

The EAC in collaboration with EABC has developed the Non Tariff Barriers (NTBs) mechanism as envisaged in Article 13 of the EAC Customs Union Protocol. The mechanism provided for the establishment of the National Monitoring Committees in the Partner States and the Regional Forum on NTBs to assist in identifying, monitoring and the elimination of NTBs.  The mechanism is also replicated at a Tripartite level in the COMESA-EAC SADC NTB Monitoring Database. 

Currently the EAC has undertaken a study on the development of a legally binding enforcement mechanism based on international best practice for elimination of NTBs in the region.  The study is expected to analyse the effectiveness of the EAC mechanism on identifying, monitoring and elimination of NTBs as per the EAC Time Bound Programme.  The study is also expected to categorize NTBs into categories to be subjected to legally binding enforcement mechanisms based on proposed criteria and propose NTBs to be arbitrated by the East African Court of Justice.  Hence a key outcome of the study will be proposals to strengthen the EAC Mechanism through introduction of legal enforcement clauses in the current system.

In addition, EAC is coordinating preparation of an EAC position on the elimination Non-Tariff Barriers under the on-going negotiations for the Tripartite Free Trade Area to ensure that the issue of elimination NTBs in the FTA is well articulated.  In this respect the monitoring of services barriers should be included, which will expand on the approach which currently lends itself mainly to trade facilitation issues.