Minerals trading: Zonal markets good for controls, not prices

10Sep 2019
Editor
Dar es Salaam
The Guardian
Minerals trading: Zonal markets good for controls, not prices

WAYS are being sought to improve the state of the budding minerals market in the country, which the government is nurturing in the wake of efforts to curb the rampant smuggling of all sorts of minerals to the borders to earn a higher price.

Not only was a wall built around Mirerani tanzanite mining area but minerals trading centres opened in various regional centres, though it appears some are not yet conducting actual trade in minerals, just exhibition. There are restrictions embedded to ease tracking of purchases.

Dealers in minerals have of late been talking to minister Dotto Biteko on the problems they are still encountering in the effort localize minerals trading in a ‘win-win ‘ environment, and true enough the government decided to go part of the way to meet the dealers’ demands.

While the minister did not elaborately set out the function of existing restrictions, a few issues can be mapped out at least mentally, one of them being the creation of purchasing cartels. They would swoop markets one after another.

Dealers are on the whole unhappy with the situation where their licences apply to specific regional minerals trading centres they would ask to be attached, not purchasing minerals at random all over the country.

The trouble with this arrangement is that it skews competition to one between traders at a specific place instead of traders all over the country, and implicitly understates the market price of the minerals were the trading free enough. Similarly, foreign buyers would be tied to the same condition.

From a commercial point of view there is no actual problem with trading cartels so long as they can’t make regulations to keep out competitors, in which case a few powerful buyers would purchase most minerals, and undercapitalized local buyers would walk away.

At the same time, what need is there for a class of miners and a class of local buyers, when the latter have to sell the minerals on the global market, despite intentions of cutting and branding locally. Technically it is possible but the marketing is different.

There are times that Russia attempted to break the global diamonds marketing cartel at Antwerp in Belgium and failed, as the highly priced industrial and decorative products require the most authentic vetting the market can find, and that aspect itself can take up nearly a third of its market price.

In that case selling independently by any country implies having to undercut the price significantly as it can’t offset the brand advantage tied to network trading in valuable stones and minerals. At the same time limiting the competition in the local purchasing of gemstones reinforces the pressure for smuggling, and thus bribes.

The minister met halfway the demands of minerals traders, in accepting that licences be used zonally rather than regionally, which means a trader shall have two or three centres in which he or she can buy minerals, not the whole country.

As they say, Rome was not built in a day, so it is likely that minerals trading in the country started with plenty of precautions to optimize certain benefits, for instance the prices that the Bank of Tanzania offers to small scale miners or dealers if it picks the stock it purchases directly or after initial trading.

All these are issues that must be considered in improving regulations, that the government should not seek maximum benefits from small miners as that will stymie the trading, etc.