Madagascar EITI points to lost revenues due to mineral smuggling

While large investments by Ambatovy and Rio Tinto have significantly increased mining production at industrial scale in the last five years, small scale and artisanal mining continue to be important sources of employment in Madagascar. These small operations concern mainly gold, precious and semi-precious stones, which are produced and exported illegally.

The 2013 EITI Report launched last week shows that the government ban on export of gold has not stopped these commodities from leaving the country. The report cites figures from the United Nations Conference on Trade and Development, which estimates that US $10 million and US $16 million worth of gold were illegally exported to the United Arab Emirates alone in 2012 and 2013 respectively. Based on this information the report estimates significant loses in government revenues due to mineral smuggling.

Extractives sector small, but growing

Madagascar’s latest EITI report discloses revenues from its extractive sector for the years 2012 and 2013 – years of political uncertainty and a two-year suspension from the EITI. The 2013 data showed that revenues from the mining sector contributed just 2% to the country’s GDP, an increase from 0.7% in 2012. This increase can be attributed to the beginning of ilmenite operations by Rio Tinto and cobalt and nickel operations by Ambatovy. In 2013, tax revenues from the extractive sector doubled to 14% of total government revenues, and according to a study conducted by the Central Bank of Madagascar, the extractive sector represented almost half of foreign investment.

Having a voice in natural resource management

Companies pay taxes both at the central and local levels, where they operate. In the Tamatave and Fort Dauphin municipalities, for example, mining companies were the largest taxpayers. Citizens in these municipalities are given a say in how revenues from their natural resources are used through participatory budgeting. This allows the population to have a say in how to allocate revenues from mining activities. These funds were used to pay salaries of the local staff at the commune, and infrastructure developments for the local communities (construction of schools, road repairs and water).

Petroleum and mining code reforms underway

Madagascar is updating both its petroleum and mining codes to improve competitiveness. Confidentiality clauses in petroleum and mining contracts continue to be an obstacle to license and contract transparency. These clauses will be assessed as part of the reforms. Furthermore, the mining code reform will strengthen the national mining company.

To find out more about EITI in Madagascar, visit their homepage at www.eiti-madagascar.org or the country page on eiti.org.