The impact of the new Mining Local Content Regulations on banking operations
In this month’s Finance Briefing we review the effects of the new Mining (Local Content) Regulations, 2018 (the Regulations) on operations of commercial banks in Tanzania.
Recent legislative changes have been introduced to encourage local content participation in Tanzania. In general, the spirit of the Regulations is to increase local content in the mining sector. Regulation 36, in particular, deals with the use of a bank account in Tanzania by requiring persons or entities who conduct mining operations or activities (at all levels of the supply chain) in Tanzania to maintain a bank account with an indigenous Tanzanian bank and transact business through banks in Tanzania.
Under the Regulations, an indigenous bank is a bank which is 100% owned by Tanzanians or a bank whose majority shareholding is made up of Tanzanians. The requirement to use indigenous banks may ultimately require Tanzanian banks which have foreigners as majority shareholders to consider restructuring their shareholding so as to comply with this requirement and continue to retain mining clients.
It is noted that the requirement to use indigenous banks applies to contractors, subcontractors and licensees, who are defined as persons / entities that have entered into mining agreements with Tanzania, third parties to whom such persons have entered into mining contracts for mining operations and persons granted licences to undertake mining operations, respectively.
The Regulations reinforce the provisions contained in the fairly recent Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 (the Permanent Sovereignty Act), specifically under section 10 of the Permanent Sovereignty Act which states that any arrangement for extraction, exploitation or acquisition and use of natural wealth and resources shall require that earnings from disposal or dealings be retained in banks and financial institutions established in Tanzania. Only distributed profits may be kept in banks or financial institutions outside Tanzania where repatriated in accordance with Tanzanian laws.