Toward a Healthy Society

The Canada-Tanzania FIPA: Bilateral Relationship or Unilateral Advantage?

From the Archived "Cardus Policy in Public" Series

In October 2012, Tanzanian President Jakaya Kikwete visited Ottawa to finalize discussions for a Foreign Investment Promotion and Protection Agreement—FIPA—between the Governments of Canada and Tanzania. It's one of many that Canada is busy signing and negotiating to promote Canadian investment interests abroad. But do these agreements walk the talk of bilateral benefit?

Last month, Tanzanian President Jakaya Kikwete visited Ottawa to finalize discussions for a Foreign Investment Promotion and Protection Agreement—FIPA—between the Governments of Canada and Tanzania. The Government of Canada has signed thirteen similar agreements and is currently in negotiations in thirteen other countries. FIPAs encourage Canadian corporations to increase foreign investment by establishing set trade agreements that make the climate for investment "more transparent and predictable," according to the Department of Foreign Affairs and International Trade (DFAIT).

The agreement is intended to have an economic benefit both countries by encouraging investment between them, according to Prime Minister Harper. In a global trading system presently marked by an unstable climate, FIPAs are intended to promote international trade by creating policies that make foreign investment practices more predictable for Canadian investors. Indeed, from a macro-economic viewpoint, this notion is highly favourable. However, as the Canadian government moves forward in securing a more robust trading relationship with Tanzania, it is the more micro effects on Tanzanian communities that need to be considered.

Tanzanian Natural Resources: Riches for Some

It makes sense that the Canadian government would want to ensure increased opportunities in Tanzania. The East African state sits on $40 billion of gold reserves from which Canadians immensely profit—Canada is the largest mining operator in Tanzania, with Barrick Gold operating since the early 1990s. And with Tanganyika Oil's recent takeover by Chinese SINOPEC from its Canadian ownership, the Government of Canada is feeling heightened pressure to secure business relations with a country, and on a continent, that is shifting its economic ties from the West, and toward China.

Despite sitting on these resource riches, mining accounts for less than 4% of Tanzania's GDP. Similar to many countries on the African continent, Tanzania is resource—rich yet disparately socio-economically impoverished—ranking 152 out of 187 on the Human Development index, with 70% of the population living on less than $1.25 USD per day. Indeed, Tanzanian citizens have yet to reap the benefits of their land.

The most recent SADC (South African Development Community) report indicates that Tanzania's trade declines, on average, 0.6% per annum, while its imports have increased by 18%; the country has continued a negative balance of trade, accelerating since 2000 with the growth of imports. The majority of the country's trade is between South Africa and the EU, with merely 1.2% of Tanzanian exports going to North America, and 4.5% of its imported goods coming from the same. Agriculture remains Tanzania's largest exporting sector, accounting for over half of all exports. Mineral products account for 5.9% of all exports; precious metals, 42.8%. These figures demonstrate that Tanzania is aware of the importance of its mining industries for its development. The negative balance of trade is indicative, however, of the need for improved investment policies to ensure that Tanzania benefits from its vast resources.

Heightened Investment to Social and Environmental Degradation

The talks for a FIPA-like agreement began in 2008 when a Tanzanian government commission, headed by retired judge Mark Bomani, called for greater "royalties and taxes on the foreign mining companies." Recognizing that this would reduce profit-making abilities for Canadian-owned mining companies, the Government of Canada immediately began negotiating with the Tanzanian government. In the name of free trade, Canada was able to ensure that the recommendations of Bomani's commission, most notably tariffs on foreign corporations, were not enforced. Although the agreement is described as beneficial to both countries, the fact that Canada exports over $61 million to Tanzania in contrast to its $5 million in imports from the country is demonstrative of an imbalanced trading relationship.

With FIPA, Canadian businesspersons and corporations will be able to invest in Tanzania knowing that their capital will remain secure. This, in turn, means that Tanzania must be more hands-off in its operations with Canadian businesses, ensuring that Canadian investors are able to work independently of Tanzanian policies and, consequently, be able to turn as great a profit as possible. Although both governments have agreed upon the FIPA, the undeniable power imbalance cannot be forgotten in understanding Tanzania's rationale for signing a document that may not be as favourable for its economy.

The Canadian government has been a strong supporter of the Tanzanian government since it gained independence in 1961. CIDA has given over $1 billion CDN in aid dollars to the country, with disbursements on the rise: from $9.8 million in 2002 to 2003 to over $119 million in 2011 to 2012. Tanzania has long been one of CIDA's priority countries. While Canada is not coercing Tanzania to sign this agreement, the power imbalance cannot be disregarded, particularly given that the agreement is so drastically unilaterally beneficial. Prime Minister Harper notes that the Canadian-Tanzanian FIPA will "encourage investment between our two countries and better protect Canadians that do business in Tanzania." Indeed, Canadian companies will now be better protected to operate more freely.

Yet void of these constraints, Tanzania loses out on domestic job opportunities from its resource sector. Tanzanians who were once actively employed in the resource sector are no longer able to compete given foreign ownership. In fact, there are explicit policies that enable foreign mining companies to hire internationally. Articles 8.4 and 8.5 of the Buzwagi mine contract between Barrick and the Tanzanian government, signed in 2007, gives no restrictions on the number of expatriates Barrick can employ. In addition, expatriates working for this mine can import and export without restrictions. With total employment at the six major gold mines in Tanzania at 7,135 persons, the foreign-dominated mining sector in Tanzania has offered few opportunities for local employment. UNCTAD studies indicate that the "employment effects [of large-scale mining] are negligible . . . and large-scale mineral extraction generally offers limited employment opportunities, and hence has little impact on employment." Tanzania is no exception.

In addition to job loss, Tanzanian mining communities run the risk of being even further jeopardized by malpractice of Canadian companies. Canada is the leading investor of mining in Tanzania. It is also the most widely criticized. Canadian mining companies, particularly Barrick Gold, have been admonished in recent years for malpractice that has gravely hurt mining communities, both socially and environmentally. In May 2009, toxic sludge from the North Mara mine crept into the Thigithe River. There have been questions pertaining to the extent to which the spillage impacted the surrounding communities. Barrick's chief African-spokesperson, Charles Chichester, assured that the toxic waste was quickly cleaned and resulted in no deaths. In contrast, Village Chairperson Abel Kereman Nyakiha reported greater than forty deaths from three surrounding villages resulting from the contamination.

A 2009 report from the Norwegian University of Life Sciences condemned the life-threatening arsenic levels found near the North Mara mine. In a report from the Norwegian University of Life Sciences, Evans Rubara of the Christian Council of Tanzania admonishes the destruction: "If nothing is done the environment will be destroyed. It has already become heavily polluted by arsenic, cobalt and other heavy metals." FIPA lessens the possibility for the Government of Tanzania to impose policies to regulate these malpractices and instead gives Canadian investors more freedom. While FIPA and the Government of Canada do not in any way endorse these malpractices, weakened regulations do heighten opportunities for such malpractices.

On paper, Canada's FIPA with Tanzania will encourage trade between the two countries. As it presently appears, however, it allots more opportunity for Canadian corporations to reap the benefits of weakened regulations on resource extraction from a resource-rich, poverty-stricken African nation. The well-documented rewrite of the Government of Canada's official statement of Canada-Tanzania relations two days prior to Kikwete's visit is a telling account of the government's recognition that the relationship between Tanzania and Canada has changed. But Canada currently has an opportunity to make significant shifts to ensure that the change is for the better.

Canada has signed thirteen FIPAs and is currently pursuing thirteen others. These agreements provide Canada with a unique opportunity to secure bilateral relations with lower to middle-income countries—an opportunity could work to benefit these countries socio-economically through heightened foreign investment. But Canada must be cautious to ensure that it is a mutually beneficial, rather than a one-sided, relationship. Canada would be well served to institute regulations that mandate corporate responsibility when doing business internationally, especially in more vulnerable settings, such as Tanzania. In 2010, John McKay introduced Bill C-300 to Parliament—the so-called "corporate accountability bill"—that sought to protect foreign communities from socio-economic and environmental harm by Canadian investors, notably in the mining sector. The Bill failed a mere six votes short of being passed. Recognition of this problem exists at the highest levels, but Canada must do more to ensure its businesses do no harm when investing in impoverished states.

Even though Bill C-300 did not pass, Canada has ratified numerous conventions and agreements, particularly through the International Labour Organization, and international human rights law conventions that uphold social, economic, and environmental rights. The Government of Canada must act to ensure that Canadian-owned businesses are operating according to these international regulations. It is states, not private actors, that are signatories to these conventions, so it is imperative that Canada do more to ensure businesses operating through FIPA meet these international standards of practice. In this way, Canada can ensure that its FIPAs are truly bilateral, rather than unilateral, agreements.