Main challenges for Tanzania entering the petro-age

Countries that are rich in natural resources have not performed well in terms of growth and industrialisation. Through transparency and accountability, Tanzania aims to have a different outcome.

-One of the challenges Tanzania faces in stimulating industrialisation is ensuring that the abundance of natural resources benefit the economy more than they have done in the past, said the guest of honour vice president H. E Samia Suluhu at the REPOA annual research workshop “Making Industrialization work for Socio-Economic Transformation” on 6-7 April. At the workshop, researchers from REPOA and the Chr. Michelsen Institute discussed key questions for turning revenue from natural resources into growth.

Vice president H. E Samia Suluhu pointed out that one of the challenges is to ensure that the abundance of natural resources benefit the economy more than they have done in the past. (Photo: Ingrid Hoem Sjursen)

Speaking at the workshop, Norwegian Ambassador Hanne-Marie Kaarstad, also reminded the audience of the importance of research in the early petroleum era as this played a crucial role in Norway avoiding the resource curse.

Petroleum fund
Under the Oil and Gas Revenues Management Act 2015, an Oil and Gas fund was established in Tanzania to ensure macroeconomic stability and enhancement of socio-economic development. There are many different experiences from petroleum funds based on the design of the fund and initial equilibrium in the economy. In Alaska, for example 50% of the revenues go to the fund, in Chad 10-15% while in Norway 100%. The Norwegian pension fund, which is the largest sovereign wealth fund in the world, is often referred to as a prime example. Norwegians however, spent 23 years investing in education, health and infrastructure before they decided to put their revenues in a fund.

Professor Torvik from Norwegian University of Science and Technology, NTNU urged Tanzania to invest revenues in infrastructure and human capital instead of a petroleum fund. Gathering wealth in the form of infrastructure, human capital and health is harder to loot than collecting money in a petroleum fund in a society with weak institutions. These non-lootable investments are key investments in ensuring industrialisation.

Executive Director at REPOA, Dr. Donald Mmari. (Photo: Maria Njau)

Local content
Local content is agreed to be a positive requirement by all stakeholders in Tanzania. However, the road from inception to implementation has not been a smooth one and there are still many challenges facing the Tanzanian society. A key obstacle is the sense of mistrust permeating the extractives sector based on the low revenues Tanzania received from its mining sector and the continued reports of tax evasion from large mining companies.

Over the years, the number of goods and services procured locally has increased, but what is defined as ‘local’ remains unclear. For example, a large multinational plant for spare parts with a local dealership is considered to be a local procurement and the purchase of fuel from companies like BP and Orxy is local content.

Expectation Management
A key challenge moving forward is to be realistic about how the sector can benefit the country, as expectations of large revenues themselves can drive the economy and change people’s behaviour. Based on a survey in Mtwara, Lindi and Dar es Salaam presented at the workshop, people expecting high gas revenues expected increased corruption. This however goes back to the point on how these revenues are managed and whether they will be accessible to looting or be invested in human capital and infrastructure making them harder to expropriate. This survey was conducted in 2015, before the elections and it would be interesting to see if citizens still feel the same under the current government or if their expectations of corruption have changed.

By Maria Njau, Dar es Salaam, 14 April 2016

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