Now or Never?

Now or Never?

tanzanitenoworneverTourists are going to be floored this season by how expensive Tanzanite has become.

The Tanzanian president’s sweeping dictatorial attempts to reduce corruption are currently focused on the country’s precious minerals. The fight is far from over, but so far he’s struck out with the biggest player, Acacia [Gold] Mining, so he’s set his sites on Tanzania’s small Tanzanite industry.

By simple arithmetic Tanzania should be rich. It has the world’s second largest gold reserve plus significant amounts of diamonds and uranium, as well as many precious earths.

But of 230 sovereign entities in the world, Tanzania ranks 191st in wealth. South Africa of comparable size, population and other social distributions, ranks 118th. Why the difference?

There’s no single reason, but there are two very important reasons, one historical and one contemporaneous.

Historically Tanzania suffered from enormous foreign exploitation, beginning with ivory and slave trade and not ending until a half century ago when independence supplanted very exploitive German then British colonialism. South Africa also experienced a painful colonial history but it ended much longer ago and the oppression was never as onerous as with Tanzania.

Currently, though, the problem is corruption. South Africa is bubbling with corruption, too, but it’s pretty much at the surface of an inept if criminal administration. Move down the hierarchy of power and you’ll mostly find pretty solid, honest working men and women. This is simply not true in Tanzania.

For the last half century every layer of Tanzanian society survived on corruption. This isn’t to say that the souls of Tanzanians are all corrupt. Many cases are like the police. Rarely paid on time if at all it’s the only way they survive.

The current president wants to fix all this. He has widespread support, including popular acceptance of his extra- and patently illegal moves to discover then punish corruption, and even more remarkably, support for preemptive quashing of all opposition.

Like some revolutionary supporters of the unconventional President Trump, many Tanzanians believe nothing short of extra-legal action will right the system.

Corruption always starts at the top. Tanzanians don’t have the capital to extract gold. It’s one of those nefarious components of capitalism that keeps the rich getting richer for no good reason than acquired wealth and it greatly discounts the initiatives of the young and/or the poor.

There are few industries requiring such monstrous capital as mineral extraction. There are only a handful of companies worldwide capable of it. The standard way they get the license from some poor country to extract its mineral wealth is by bribing top officials.

Those Tanzanian moguls then bribed the folks under them, and they bribed the folks under them and so on until the foreign multinational got carte blanche to export tons of precious minerals for a fraction of their actual worth.

In the case of gold President Magufuli thinks he knows how much his country lost. He slapped his foreign extracting company, Acacia Mining, with a $190 billion fine for past taxes and corruption. I wouldn’t be surprised if this figure is realistic.

Acacia would go bankrupt if it paid the fine. So it’s closed down much of its operation and threatened to throw Magufuli the key and walk away. Meanwhile hundreds of workers are out of jobs and the revenue stream to the government is getting even smaller.

Personally I think Magufuli believes he can nationalize the industry and run it himself. I’m very much an anti-capitalist but I don’t think he can do this. He’ll wreck the country in the process giving even greater leverage to the giant multinationals that come to pick up the pieces.

Like an incensed bulldog that just got slapped around by a rottweiler so starts chasing a little kitty, Magufuli has turned his attention to the Tanzanite trade.

Tanzanite is mined only in Tanzania and despite the fact that it’s a precious gem ranking right up there with rubies and opals, the entire industry is a drop in the bucket compared to his country’s wealth in unmined gold. But perhaps exactly because it is such a small industry, his angry broom just might work.

Technically he’s focusing on the tax that miners and distributors are supposed to pay at each transactional point. Rather than levying a fine for past transactions as he tried with Acacia, he’s simply insisting that tax officials now collect what they were always suppose to collect but either never did or did then pocketed themselves.

The result is going to be an immediate increase in the price of Tanzanite, which right now hovers around $650 carat. The danger is that if the pockets of the miners and distributors need to be replenished at the levels they’ve enjoyed, the cost is likely to rise to $1000 carat in order to pay the taxes required.

It’s not clear the market will accept Tanzanite becoming nearly as expensive as diamonds. If it does Magufuli wins as will every owner of Tanzanite and to a much lesser but demonstrable degree, the average Tanzanian.

If it doesn’t the value of Tanzanite will crash and virtually everybody will lose.