The fall in commodity prices is threatening to destabilise the growth outlook for Tanzania.
One of the biggest mining companies in the country reported a 30 per cent profit drop, signalling depressed earnings from gold production.
The drop in revenue from gold exports will affect Tanzania’s foreign exchange earnings as it is a key source of foreign exchange earnings for the region’s second largest economy.
Tanzania is Africa’s fourth biggest gold producer after South Africa, Ghana and Mali.
The fall in commodity prices is threatening to destabilise the growth outlook for Tanzania.
One of the biggest mining companies in the country reported a 30 per cent profit drop, signalling depressed earnings from gold production.
Acacia Mining Plc, which operates three gold mines in Tanzania, said that its full-year 2015 core profit fell 31 per cent, attributed to a fall in gold prices, which declined by about 10 per cent in 2015.
The firm’s chief executive Brad Gordon said that earnings before interest, tax, depreciation and amortisation for 2015 fell to $175 million from $252.7 million the previous year, while its revenue fell to $868.1 million from $930.2 million.
On Wednesday, the firm announced that it had entered into a hedging agreement in relation to the amount of the gold to be produced at the short-life Buzwagi mine between 2016 and 2017, which will see it mitigate cash flow risks associated with a potential fall in global gold prices.
Mr Gordon said the company was taking a prudent step in locking in a gold price in excess of its planning price at Buzwagi, which was currently in harvest mode.
“The mine generates the majority of our cash flow over the next two years and by putting in place these hedging measures, we reduce the gold price risk, while maintaining some exposure to a future upside,” said Mr Gordon, adding that Acacia will remain unhedged at its long-life assets, Bulyanhulu and North Mara.
The drop in revenue from gold exports will affect Tanzania’s foreign exchange earnings as it is a key source of foreign exchange earnings for the region’s second largest economy.
Tanzania is Africa’s fourth biggest gold producer after South Africa, Ghana and Mali.
Ahmed Salim, a senior analyst at Teneo Intelligence, said the gold sub-sector faces a few difficult years ahead and it was no surprise that Acacia Mining saw its profit for 2015 fall.
Not all bad news
“Despite the low gold prices, the Tanzanian economy has demonstrated a certain level of resilience in terms of growth. This is demonstrated by the country’s 7.1 per cent GDP growth in the fourth quarter of 2015. Given that elections took place in the fourth quarter, the expectation was that the economy would slow down and growth would not be very high,” said Mr Salim.
In 2014, Tanzania earned $1.31 billion from gold, down from $1.64 billion in 2013, with tourism becoming the biggest foreign exchange earner at $2.05 billion, for the first time.
Citi Bank Africa chief economist David Cowan said China’s economic slowdown has exerted pressure on economies like Tanzania’s, resulting in a mismatch between inflows and outflows.
The Bank of Tanzania has projected that the country’s economy will expand by seven per cent this fiscal year and maintain a stable growth rate on the back of a strengthening manufacturing sector, high tourism earnings and a projected increase in gold production.
In sub-Saharan Africa, countries like Zambia, South Africa and Tanzania are facing fiscal deficit pressures as they seek alternative revenue streams, including debts, to cover the fall in commodity prices.