Malawi a mineral resource hub but a “Sleeping Giant” – with Ignatius Kamwanje

For a couple of decades now, Africa’s mineral resources have been increasing in value but the proceeds do not reach the people. Instead, it’s the elite and mining companies, which are usually foreign-owned, that benefit. In some cases, the lack of political will to create an adequate framework for legalizing mining activities may be explained by personal interests related to corruption, money laundering and similar illegal activities.

This paper will highlight two contrasting situations in African countries that I came across and one can easily draw lessons from them (extracts from the GSaf Newsletter of September, 2017, dated 2017.09.18 ,pp.6 carrying the title ‘Africa is Rich in Diamonds but still Poor’)

Last Week, Tanzanian police struck a blow against international diamond smuggling. A consignment of diamonds worth around 28 million euros ($33.4million) was seized at the country’s main airport. Petra Diamonds, the biggest listed diamond company in the world, based in the tax haven of Jersey, had registered a consignment of 14 kilos (30 pounds.) However, according to the Tanzanian authorities, it actually weighed 30 kilos. The rough diamonds from the Williamson mine were intended for export to Belgium for processing.

The Williamson mine in the north of Tanzania is a joint venture. 75 percent belongs to Petra Diamonds, 25 percent to the Tanzanian government. Benedict Mahona, an economics expert from the University of Dar-es-Salam,said the seizure of the diamonds from the Williamson mine was lawful. He explained that the customs laws of the East African Community are unambiguous: Every product that is imported or exported from the area must be correctly registered and declared.

Globally operating companies are systematically plundering Africa’s diamond resources, and only a fraction of the stones are properly declared and have duty paid on them,

Mahona said. He also commented that the theft of diamonds almost always happens with the help of corrupt locals.

At the same time, with its tough approach the Tanzanian government runs the risk of international companies withdrawing their business and jobs being lost as a result, according to Rebekka Rumpel, an expert in natural resources at the London think-tank Chatham House. “Tanzania’s tough approach is bound to impact negatively on the country’s image,” she says. Rumpel reports that a large-scale investor from Russia who wanted to mine Tanzanian uranium has already put his project on hold, in part because he was worried about the investment climate in Tanzania.

Corruption on both sides

President Magufuli announced that Tanzanians might take over the diamond mines if the foreign companies continued to be a “problem.” Amani Mhinda,an activist with Haki Madini, describes this as “pure populism.” Haki Madini is a non-governmental organization that advocates transparency in business.”That didn’t work in the past, either,” says Mhinda.  “Indigenous companies are at least as corrupt as foreign ones.”Tanzania is more of a mid-level player on the African diamond market. The East African country is ranked tenth among the continent’s biggest diamond producers. The Tanzanian government hopes that by 2025 the mining industry will contribute at least twice as much GDP as it has to date. At the moment its contribution is less than four percent.

Botswana: More transparency, more added value

Things are different in Botswana. The biggest diamond producer in Africa is regarded as a model in many respects when it comes to channelling profits from the export of raw materials back into society. 75 percent of the country’s Foreign exchange revenue comes from the sale of rough diamonds. Botswana seems to have learned from the negative examples in Africa. It tries to keep the value added chain in the country for as long as possible. A large quantity of the rough diamonds are processed - divided, cut, polished, drilled- in Botswana itself. Until just a few years ago, this was done in, for example, the Belgian city of Antwerp, or in Israel. This is still the case with other African diamond producers.

Using diamond money to improve the economy overall

Unlike almost all the other countries in Africa, Botswana has dealt carefully with its riches. The government affords itself social programs that its African neighbors regard with envy. These include free school education and free health care. In addition, part of the money from diamond mining is put towards improving the road, telephone and internet networks.

Now all Botswana has to do is successfully invest profits from diamond mining in building up other branches of industry as well, Ricardo Soares de Oliveira,an Africa expert at Oxford University, told DW in an interview: “Then it can be guaranteed that even more money will remain in the country in future.”

What lessons do we learn from Tanzania?

•  the customs laws of the East African Community are unambiguous
•  theft of diamonds almost always happens with the help of corrupt locals.
•  Tanzania’s tough approach is bound to impact negatively on the country’s image.
•  A uranium investor is/was worried about the investment climate in Tanzania.
•  Tanzanians might take over the diamond mines if the foreign companies continued to be a “problem.”
•  Indigenous companies are at least as corrupt as foreign ones.

It can be concluded here that Tanzania is pushing on very tough measures on mining companies that in the long run is said to impact negatively on investors hence scaring them away. However, it is the questionable conduct of mining companies themselves on public disclosure to the government on the proceeds of the exact quantity of sales that has created a very hostile environment. There is undervaluation of the quantity based on the market price. As a result, mining companies have of recent times suffered heavily on revised and new chapters on royalties that have been put in place in Tanzania. Surprisingly Tanzania was one of the forerunners of EITI campaigning and PWYP (Publish What You Pay)where campaigns by Haki Madini and other CSOs were heard all over the country through adverts using over 40 television stations and other media outlets to reach the masses.

What lessons do we learn from Botswana?

•  75 percent of the country’s Foreign exchange revenue comes from the sale of rough diamonds.
•  Botswana tries to keep the value added chain in the country for as long as possible
•  The government affords itself social programs from mining revenues.
•  A large quantity of the rough diamonds are processed - divided, cut, polished, drilled - in Botswana itself
•  More money will remain in Botswana in future.

It can be concluded here that Botswana has a good political will for investment climate. This is perceived to be like that because the corporate image and entity is robust so much so that the country creates a sense of ownership of the mines by the government unlike other countries. This is also evidenced by the diamonds being the largest foreign exchange earner and everything including processing is done by the country itself. This prevents massive corruption at highest level and even public disclosure of the proceeds from the sales is transparent as a result revenues collected have borne fruits in terms of social programs one can easily see and identify.

What lessons do we learn from Malawi?

Malawi’s mining industry is still in its infant stage but with large potential. If the mining industry was taken seriously as one of the sectors that can contribute positively to the development of the country, it could transform the imagery though not the case at the meantime. Of the two scenarios outlined in the two countries above, Malawi does not belong to either and it needs one to understand and analyze why it is such a case. Surprisingly it is the public that is making noise through CSOs since they are the people on the ground and the government does not seem to protect the mineral resource base at length. As a result, mining companies and even Artisanal Small Scale Miners are exploiting mineral resources without proper checks and balances. The government may be encouraged to devise robust monitoring mechanisms to arrest such problems. However efforts have been made in Malawi to establish MWEITI that was launched this year 2017 after being admitted by EITI in 2015 and this is perceived to be driving force/an initiative and a tool towards ensuring transparency and accountability through equitable exploitation of natural resources for sustainable development in Malawi through PWYP in the extractive sector.

Malawi has one of the best mineral resource potential in Africa and the entire world.  Living examples are Illomba blue granite (sodalite), one of the rarest formations, the Kangankunde Rare Earth famous for its cerian monazite, strontianite and manganese. The other mineral prospects include the Malingunde Graphite Deposit, the Songwe Rare Earths, the Tundulu Phosphates, the Potential Offshore and Onshore Oil and Gas, Kayelekera Uranium (under Care and Maintenance so to speak), the Lisungwi Valley Gold possibly the Stringer type that tends to find its way ultimately into the stream beds being under prospect by Mota Engil, Nathenje gold prospect, Unga River (the current Mangochi alluvial gold rush), the Chimwadzulu Ruby Mine, Bauxite on mount Mulanje, Coal Mines in the North, The Kanyika Niobium, the Mzimba Gemstone Belt also  with potential for Tantalite, Dowa Gypsum, the Tengani and Makanjira Heavy Mineral Sands that are sources of zircon, ilmenite,rutile, the Chikwawa Blue Agate, Limestone deposits in Balaka, Kasungu and Mangochi just to mention some. Mining of such commodities could transform the country if tough measures and good political will could be put in place.

In Malawi, there are a significant number of issues which have resonated with time in the mining industry. The following are some of the observations why mining in Malawi is not forging ahead as anticipated:

•  weak legal and policy environment.
•  The notion of the  first head Head of State that Malawi does not have mineral resources.
•  lack of clarity on revenue generation, tracking, monitoring and evaluation
•  greed and lack of political will.
•  weak technical and managerial capacity of the government in Mining.
•  lack of accountability and responsible investment by corporate entities.
•  erosion of social capital and negative environmental and health impacts on communities.
• Poor culture of transparency and accountability in the sector amongst others, and the coming in of MWEITI might change the situation.

However, the Political Economy Analysis conducted by Tilitonse (published, May, 2013) uncovered four key issues that require attention if the booming mining sector is to translate into sustainable socio-economic development for Malawi as a country.

These are:

• weak and out dated legislative, policy and institutional frameworks.
• weak and fragmented role of civil society organisations.
• lack of framework for stakeholder engagement at community level.
• absence of robust revenue management and transparency mechanisms.

It is therefore  recommended that there is need for strengthening of the policy, legal and institutional frameworks; the creation of a vibrant and well-coordinated CSO response; and the reinforcement of transparency mechanisms when collecting and managing revenue, negotiating Development Agreements, and when dealing with  communities for the sector to be efficient and result in sustainable socio-economic development.  Furthermore, the Government, CSOs and mining companies all need to engage each other in collaborative approach despite their different understandings of the context and priorities, and this can transform Malawi into a giant mining hub.

The Author is a Consulting Geoscientist with experience in Mineral Exploration, Mining Geology, ESIA, Ground water Resources and Occupational Safety, Health and Environment. He can be contacted on [email protected] – 0999216869.

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This piece was initially published in Malawi’s Mining & Trade Review Issue Number 55 (November 2017).

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.

Views are the author’s alone.