Formalizing artisanal and small-scale mining (ASM), rather than criminalizing it, is now generally accepted as a global ‘best practice’ by major organizations and governments (e.g. African Union, 2009; UNITAR and UN Environment, 2018; World Bank, 2019a). Over decades, governments and donor organizations have established training and demonstration centres as part of the formalization process. Indeed, the Africa Mining Vision reiterates the importance of training centres or ‘centres of excellence’ (COEs) (African Union, 2009). Historically, these have had mixed results, partly due to limited understanding of ASM demand for particular services (Hilson, 2007). In recent years, understanding of ASM organizational and financial structures has improved. In most mining operations there are multiple ‘tiers’ of actors involved, including a small number of financial backers and paid managers, and a much larger number of workers who are paid little or are eventually rewarded with a share of the mine site’s production. This understanding allows for more nuanced discussion of tensions within the formalization literature, which is divided into organizations that emphasize a) the ‘entrepreneurial’ nature of ASM operators (particularly financers and managers) or b) poverty as a driving factor (i.e. lack of alternative livelihood options for poorly-paid workers).

With World Bank support, Tanzania recently established several COEs including two for the artisanal and small-scale gold mining (ASGM) sector. Because the majority of COEs address the gold sector, this paper focuses on ASGM. Gold is one of Tanzania’s most economically significant exports. ASM accounts for about 10 percent of Tanzania’s gold production (World Bank, 2015). This article examines the potentials of these centres, based on key informant interviews and a literature review of experiences from other African countries. Further, we analyse activities planned at COEs, within the Tanzanian institutional and policy context. Our study focuses on financial sustainability, technical capacity, and institutional connections of the COEs; demand for COE services, and whether COE services will stimulate ASM formalization. Recognizing that many formalization strategies implicitly make assumptions about ASM (e.g. its poverty-driven or ‘entrepreneurial’ nature), we explore implications of the Tanzanian approach for ASGM operators potentially transforming into medium-scale mining (MSM) firms.

Formalization initiatives can be categorized according to their emphasis on the most common issues: legal (acquisition of permits; environmental, health and safety requirements; labour laws etc.); technical (access to geological data; use of efficient equipment; processing, etc.); institutional (capacity-building and expansion of cooperatives or associations, with a view to facilitate monitoring and coordination); financial (payments of fees and taxes, capitalization of mining operations, etc.) (see e.g. UNITAR and UN Environment, 2018). Formalization programmes focusing on legal issues to the exclusion of others can be characterized as promoting ‘legalization’, also called “paper formalization” (World Bank, 2015: 13); efforts to institutionalize mining can also be legalistic if they only focus on increasing membership of organizations, and documentation, without considering the quality of institutional governance. On the other hand, projects which focus mainly on technical issues without accounting for contextual issues, risk failure (e.g., miners may lack capital to maintain equipment, or may not share the environmental, health and safety goals promoted by the project). Projects focusing on financial aspects will tend only to benefit certain actors unless they also invest in institutional reforms to ensure that benefits are more widely distributed.

Moreover, formalization can have unintended consequences, including, “exclusion, inequality, and exploitation of labour” (UNITAR and UN Environment, 2018: 11). Impacts are often gendered, with men and women being differently positioned (e.g. through educational opportunities, access to capital) to apply for licenses, loans, cooperative membership, and other requirements (Bashwira et al., 2014; Hilson et al., 2014). Although the gender dynamics of ASM may be slowly changing, women tend to have access only to lower-paying opportunities (washing, rock-breaking, etc.), and may be more vulnerable to job losses due to mechanization. There are, therefore, important debates over how formalization efforts should be designed and implemented.

ASM operators, stigmatized for decades as primitive, anarchic and destructive (Childs, 2014), are increasingly being taken seriously as businesspeople. The different roles of pre-financers, pit owners or managers, paid workers, and workers operating under production sharing agreements (PSAs) have become clearer in recent years.1 While the exact organizational structure varies, some typical organizational characteristics can be identified: “contrary to the entrenched notion of ASM as a purely poverty-driven, economically irrational and disorganised activity, it is governed by complex organisational models” (Merket, 2018: 27). Some scholars have noted a three-tiered structure, including a) site owners (possibly primary mineral license holders), b) pit owners, and c) teams of workers (Brycesson and Jønsson, 2013; Jønsson and Fold, 2013). Site owners tend to simply lease mines to pit managers, though they may operate in the background as financiers. Day-to-day management typically depends on pit owners, who pay specialist employees (e.g. mechanics), purchase equipment, and pay other operational expenses. The workers – by far the largest group – typically depend on PSAs. There are also mineral brokers and dealers. In reality, some individuals may play more than one role (i.e. dealers may pre-finance ASM, functioning as site owners).

Due to the informal nature of these arrangements, workers are particularly vulnerable to financial exploitation, and face most of the physical risk. The large number of ‘workers’ performing risky and precarious labour leads some to argue that, “international development institutions now widely agree that ASM is largely a poverty-driven activity” (Mutagwaba et al., 2018:17). At the same time, there is some awareness of the key role of site owners, pit owners, and other capitalized entrepreneurial individuals.

Understanding ASM organizational structures allows us to apply organization and management theory to the study of ASM. Many formalization efforts aim to facilitate ASM to become more productive and invest surplus profit in various forms of capital (human, technological, financial, etc.) to ‘grow’ businesses and move towards MSM operations. The growth of businesses has been analysed in several disciplines in the past half-century (see e.g. Machado, 2016; Achtenhagen et al., 2010; Jovanovich, 1982; Lucas, 1978; Penrose, 1959). Generally, three models are used to explain why businesses ‘grow’. The most basic one, provided by econometricians, is the stochastic model. Under this model, the size of a firm is a result of cumulative random shocks over time such that growth reflects a stochastic (random) process (Machado, 2016). The second concept is the Human Capital Model (HCM). Penrose (1959) shows that HCM is governed by two arguments. On the one hand it is governed by ‘resource push’ arguments suggesting that a firm possesses a set of administrative skills which it needs to run the firm. On the other hand, the firm is bound by managerial limits:growth is constrained by the organizational and entrepreneurial capacity of managers. Indeed, according to Penrose, 2009 [1959]), expansion is a function of ‘managerial capacity’. Penrose also mentions challenges specific to small businesses, especially access to capital (pg. 192). Penrose further cautions against assuming that profit maximization is synonymous with growth (Penrose, 2009 [1959]: xxviii). Lucas (1978) adds that the HCM assumes that entrepreneurs have certain Knowledge, Skills and Abilities (KSAs) that influence the success of their businesses. The third theory, the Learning Model (Jovanovich, 1982), is the most influential. It recognises that management skills vary among entrepreneurs, and firms have different unobservable efficiencies. Hence the firm’s true efficiency can only be seen after it has started production, and firms update their expectations based on experiences. Revising abilities upwards leads to business growth and downward revisions otherwise.

The models above have their subtle differences. However, a common thread across them all is that managerial KSAs are key and learning is crucial to business growth (Arrow, 1962) because the business environment is stochastic (unpredictable). This raises obvious questions for our study: are ASM learning entities? Are they likely to grow and formalize? The three models may not adequately answer these questions, because, in reality, while most small businesses try but fail to grow, some refrain on purpose from expanding. Specifically, apart from a few young businesses with very fast growth (known as ‘gazelles’), most small businesses refrain from growing while others prefer slow growth even when successful in increasing profits (Machado, 2016; Penrose, 2009 [1959]: xxviii). This is mostly because there are benefits from remaining small and informal, including avoiding taxes and stringent labour laws, using PSAs to avoid high operating costs, and quickly adjusting staffing arrangements in response to contextual changes (i.e. financial challenges, low productivity). Rather than assuming that ASM operators maintain informal arrangements due to ignorance or necessity, we should observe how, “informal economy actors systematically reposition themselves vis-a-vis the State, markets, international and national policies to secure their livelihoods” (Lapeyre, 2013). We should not assume that ASM operators always prioritize growth or formalization; nor should we conflate these two concepts.