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International Business: Case of Barrick Gold Corporation – Tanzania

Introduction

Barrick Gold Corporation, a Canadian mining corporation, starts conducting its mining activities in Tanzania. Mining in a developing country comes with its challenges such as corruption, governance and corporate social responsibility that Barrick Corporation has to answer to the criticisms of NFO’s and local societies. Even though Barrick acted in a socially responsible manner, the rules are not same in a culturally and linguistically different world. The aim for the corporation is to resolve the tensions and show the secondary stakeholders that there will be an active and long committed partnership that will make a difference in the community.

Challenges in developing countries by extractive mining corporations

Extractive mining corporations face challenges including corporate social responsibility (CSR), systemic corruption, weak local governance, and legal system that threaten their ability to achieve a sustained and balanced business environment in developing countries. For example in Tanzania’s case, the government “wanted its institutions to be more transparent and accountable” (Barrick Gold Corporation, pg.292). Thus they developed competitive tax packages and offered a low cost and readily available labour force. Although Tanzania’s government did attract foreign investment, they “did not devise a practical and engaging strategy to utilize mining resources and revenues paid by TNC’s to support the local communities that were situated around mining sites” (Barrick Gold Corporation, pg.295) nor the environment. This led Barrick Corporation to receive negative reviews and fostered discontent from NFO’s and the society. The Mineral Policy of Tanzania in 1997 reflects the country’s goal for the mining sector to contribute 10% to Tanzania GDP by 2015. However today, the Tanzania Chamber of Minerals and Energy states that the mining sector contributes 2.8% to economic growth each year.  This shows that the mining sector is not always a key driver for economic growth in such countries, contrary to common understanding.

Another major challenge for the companies operating in developing countries is CSR. CSR was a major issue from two perspectives: societal and employee related problems. In terms of employee based problems, the corporation has to train employees on “various mining technology skills, and to run the company’s daily practices in accordance with the corporate business interests of the company.” (Barrick Gold Corporation, pg.296) The readily available labour force is not available to them until they are trained. In terms of societal problems, companies have hard time creating long lasting and mutually beneficial relationships through the right CSR programs because the CSR structure is still underdeveloped in many developing countries. Even though mining corporations may try to act in a responsible manner, they can be unaware of the standards they are expected to adhere to. For example Barrick Corporation recruited university graduates and was involved in a joint project where they trained locals to have necessary skills to be employed in mining sectors as their CSR initiative in Tanzania. Still, it was not combatting the discontent of local and NFO’s because they were in need of more engagement to have a mutually beneficial solution. Although they were creating jobs, they were not alleviating societal problems such as the underdeveloped health sector, sleepless nights caused by explosive mining activities, and company discharges of water that exacerbated many environmental and health issues in the community.

Lastly, corruption and weak governance are another major problem for mining corporations. As seen in the case, for Barrick Corporation “transparent and agreed-upon rules and laws that governed the operation and taxation of mining activities were a source of ongoing problems.” (Barrick Gold Corporation, pg.295) Moreover, they relied on Tanzania’s legal system and government to protect its business activities from mob criminal behaviors in the region, but the Tanzanian Field Force Unit only helped the corporation to increase anger towards them.

Barrick Corporation in Africa is an example of an extractive mining corporation attempting to establish a balance between its global strategies and subsidiary operations in a developing country, Tanzania. In such countries, there is a risk of corruption, weak legal system, cultural differences, skilled workers are scarce and faces challenges on corporate social responsibility. The overall aim for the corporations should be to “build mutual respect, active partnership and long commitment with its secondary stakeholders.” (Barrick Gold Corporation, pg. 300)

Corporate social responsibility

Barrick faced social backlash from local communities for the damage it did both to the environment but also in terms of job availability in the region, forcing the company to adopt new strategies. Moreover, they knew that incorporating CSR strategy could contribute to their business value. An effective CSR strategy means a balanced work environment, good relationship with stakeholders, increase access to capital, and an improvement to a company’s reputation.

Barrick’s new CSR strategy had a focus on health, education, and increased employment opportunities. Barrick wanted to help improve the health of local communities by upgrading local hospitals, but also to educate them regarding the benefits of the mining process in their region. It would also provide them with training, (which was targeted towards college graduates) in order to join the company and learn employable and transferable skills. The company produces reports on the results of its operations, the last of which dated back to 2013 insisting on the 80.8 million contributed to local communities (source). The report would also set goals for future years in order to keep the company on track. They achieved this through acting transparently and engaging in constructive dialogues with its stakeholders to be more responsive and open to their needs.

The generation of wealth on a local level

The ecological richness of Lake Victoria has not translated into comparable economic richness for the local population, despite a current yearly valuation of $600 million, with a suggested peak profitability of $800 million (Abila et al) This conflict initially arose in the region when Lake Victoria, which had historically been used for subsistence activities by the local population, began to be exploited for commercial gain. Local fishermen and traders were unable to compete with well-funded, well-equipped entrepreneurs and fishing companies, who were able to exploit the invasive and large Nile perch species who preferred waters that were less accessible to small-scale fishermen but were easily accessed by large fishing ships. The proliferation of Nile perch, its size and inaccessibility to small scale fishermen, and its tendency to decimate other, smaller fish populations all contributed to the decline of the local fishing industry and the flourishing of the larger commercial fishing industry in the area. This concentrated fishery wealth in the hands of larger corporations who could afford the gear necessary for the effective exploitation of the Nile Perch, and led to the transfer of fish supplies from low-income areas to more profitable urban and export markets (Warui, 22).

Although the Tanzanian government should endeavour to encourage FDI in the Lake Victoria region, this does not preclude them from substantially investing in the local economy. Firstly, the government should increase export taxes of Nile Perch. Although this is likely to be a controversial move, the Nile Perch industry is large enough that demand is likely to continue even with a higher tax in place. Ideally, Tanzania, Kenya, and Uganda (the three nations bordering Lake Victoria) would make a tax agreement on Nile Perch exports to ensure that all three fishing industries are equally affected by this tax.e. The governments of these countries have stated previously that they agree to the principle of an export tax on Nile Perch, although there has been no action on this front. (source) A proportion of these taxes can then be redirected to the development of Lake Victoria communities, for example improving infrastructure, health facilities (to combat the increase in infectious diseases associated with the decline in lake health) and education, along with providing training to the labour force in order to provide them with alternative employment opportunities.

Furthermore, the government could subsidize small-scale or artisanal fishers and fish-processors (the majority of which are local women for whom this is their primary source of income) by providing discounted fishing and fish processing equipment, and lower export taxes for those who are able to export their catch over the borders into neighbouring markets in Rwanda and Burundi for example.

Other steps the government can undertake in order to aid in the generation of local wealth include:

  1. Implementing a fish price information system, to ensure that fishers secure fair prices for their catch
  2. Increasing the efficacy of law enforcement, to control the amount of Illegal, Unreported and Unregulated Fishing (IUU) that takes place on Lake Victoria.
  3. Encouraging the development of fishery-related activities that do not directly involve the capture of Nile Perch, such as fish byproducts like fish swim bladders, skins, body oils, and use for animal feed. (Ogunja et al)
  4. Protect the property rights of the local fishers, to ensure that they have adequate access to fish stocks and that their livelihoods are not threatened by the overexploitation of fish stocks by commercial fishers.

Through these, Tanzania can improve their ability to transfer revenues from mineral extraction to economic, environmental and human development.

Tensions and violence

Tensions and violence didn’t stop because all of the company’s doings are really just a drop of water in a lake Victoria of problems. In addition to the typical damage caused by mining operations, tensions arose from government corruption, non-transparency, and an antagonistic relationship with the local population stemming from a history of inequitable dealings. The public felt isolated because of the lack of transparency and accountability both from the government and the company on issues that related to them, such as employment, tax revenues and environment management.

Since Barrick arrived in the region, the health issues, unemployment rates, and discomfort problems have dramatically increased. To help alleviate these conditions, Barrick should work closely with the local communities to achieve goals that the local population feel are most necessary to the maintenance of their well-being and survival. They should try to establish trust and be open to their ideas, become transparent in their actions, and foster development and environmental projects. Engaging with the stakeholders will help the company to foster new relationships, signal their commitment, and help them to have a social consensus from the locals. Through development and environmental projects, the company can show that they are trying to mitigate the effects of their operations and bring positive change to the region. The company should also act reflexively and improve the way it operates, perhaps by making it clear to its workers by establishing charts of objectives (Exhibit 1) for example.

Conclusion

African Barrick Gold has demonstrated a crucial understanding of the necessity of CSR and has shown its commitment to enacting the principles comprehensively. However, lip service no matter how explicit, will not be enough to fully placate secondary stakeholders for a long-term and sustainable business relationship. There is a tension between ABG, local communities, and the Tanzanian government that needs to be addressed through concessions and compromises for the continued viability of TNCs in the country. The government in particular needs to reform its image as being partial to foreign interests over the needs of its local citizens, whereas ABG should strive to to reduce its reliance on unpopular governmental institutions and foster direct inclusionary ties with secondary stakeholders.

 

Bibliography

Overview of Mining Sector. Retrieved June 8, 2015, from http://www.tcme.or.tz/mining-in-tanzania/industry-overview/

The Mineral Policy of Tanzania. (1997, October 1). Retrieved June 7, 2015. http://www.tzonline.org/pdf/themineralpolicyofTanzania.pdf

2013 Material Issues Performance Summary. (n.d.). Retrieved June 8, 2015, from http://barrickresponsibility.com/2013-performance/material-issues-performance-summary/

Abila, R., Odongkara, K., & Onyango, P. (n.d.). Distribution of economic benefits from the fisheries of Lake Victoria. Retrieved June 7, 2015, from http://www.oceandocs.org/bitstream/handle/1834/2128/WLCK-87-92.pdf?sequence=1.  

Abila, R. (n.d.). Fish Trade and Food Security: Are they reconcilable in Lake Victoria? Retrieved June 7, 2015, from http://www.fao.org/docrep/006/y4961e/y4961e0d.htm  

Newenham-Kahindi, Aloysius, and Paul W. Beamish. “Barrick Gold Corporation – Tanzania.” (n.d.): n. pag. AABS. Web.

Warui, S. (n.d.). Rents and rents drain in the Lake Victoria Nile Perch fishery. Retrieved June 7, 2015, from http://www.unuftp.is/static/fellows/document/simon07prf.pdf  

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