When is a ‘proposal’ an actual policy? In early June one possible answer to that question led to a record fall in the share price of African Barrick Gold, making this more than an abstract and obscure point.
The story begins with Tanzania’s new Five Year Development Plan. Not the most exciting of documents, perhaps, but as always the key is in interpretation. Here is the section that leads to the unfolding of our story:
“Revenue from the mineral resources will be one of the important sources of financing the Medium Term Plan. Currently the revenues from the mining sector, especially gold, are relatively small. While the annual gold exports have risen from US$ ½ billion to US$ 1½ billion (7 percent of GDP) in the last five years due to the rise in the price of gold, government revenues have remained at around US$ 100 million a year (½ percent of GDP). Considering the increasing trend in mineral prices, it is optimal to introduce a super-profit tax on the windfall earnings from the mineral sector. For instance, Australia implemented a super-profit tax on its mineral sector and is expected to earn $9 billion each year from this venture. Also, improvements in mining tax administration will be one of the measures to generate further revenue” [Govt of Tanzania, The Tanzania Five Year Development Plan 2011/12 – 2015/16 (2011) p.71-2, emphasis my own]
Not quite a concrete and detailed plan for how the mining sector will form the bedrock of future growth and development in the country, but perhaps we’re not reading it properly. Take a look again at the underlined sentence above. Is this saying that the government has definite plans to introduce a super-tax on the mining sector, with legislation to be put before parliament? Or is it suggesting something a little more vague – this might be a good idea, worthy of study and consideration, yes; but as yet little more than an abstract concept which requires fleshing out?
On 8th June, Bloomberg thought the latter, reporting the government as merely having proposed to ‘study’ the idea of a super-tax (although even this particular reading is still an interpretation of what is being said, not an exact quote), but still enough of a shock to send African Barrick Gold’s share price down by 7.8%, and that of AngloGold Ashanti by 3.1%). Reuters too shared the same assessment: that the government was “considering” it, rather than having taken a decision. It did in the same article, however, cite its sources as ‘documents seen by Reuters’ which seems to imply papers not publicly available – a possible secret plan! To be fair, citing the Five Year Development Plan makes it look like it was harder work getting the story than it actually.
But just 5 days later, reports had moved on , now seeing in the wording a concrete policy rather than a proposal. Bloomberg reported on the 13th:
The IMF also weighed in, responding to questions from the Bloomberg reporter, backing the concept of what it termed a ‘resource rent tax’ on mining companies, adding that it had met Finance minsters to discuss the proposals. On 15th June (one week after the initial reports), Reuters reported that the National Assembly had ‘approved … [the] development plan, backing the proposed introduction of a super-profit tax on mining companies’, although the article did note the government’s refusal to say ‘if and when it might introduce’ such a tax.
So we move from a vaguely worded and far from concrete proposal, to fixed policy within a week. Despite government protests that there were no such plans in motion, the story developed a momentum of its own, as is so often the case. Bloomberg certainly seemed to have broken the story, but the reporting of it around the world was a classic case of relying on the copy of others rather than checking original sources – a check which would have almost immediately uncovered the far more ambiguous nature of the story than its presentation suggested. There are rumours that Bloomberg is not happy with the way the story has unfolded and the impact on its own reputation. African Barrick Gold is almost certainly not happy with a report that led to share prices falling. And the government has spent the best part of a month trying to defuse a story that never was.
Unless… Has the Tanzanian government been rather clever here? Float a controversial idea, bound to upset mining companies, and gauge the reception. If positive, proposal can be rapidly sold as policy. If negative, then very easy to point out this was only mused as one idea amongst many, and quietly dropped without loss of face.
Whatever the truth, the idea of a super-tax is now formally out there. Even if this is cock-up rather than conspiracy it raises the intriguing prospect of what might happen if a consensus builds that this isn’t that bad an idea after all.