This paper examines the genesis of national oil companies (NOCs) and the political economy underpinning the diverse forms in which they are structured and operate. It also examines how they contribute to the development needs of the countries that have established them. The paper draws mainly from a desk review of relevant literature, institutional records and interviews from selected knowledgeable informants, and it aims to promote informed dialogue on this subject that has caught the attention of stakeholders in Tanzania in recent years following the discovery of a substantial amount of natural gas in the deep sea. The underlying proposition is that the benefits of hydrocarbon to the country can be maximized when a NOC exists, but it must operate within a robust institutional framework. As the case studies demonstrate, the robustness of the institutional framework, in turn, depends on the historical trajectory, broader institutional landscape and political economy underpinning the country’s development path. The authors argue that the Tanzanian NOC has vast potential for contributing to economic transformation in the country given the vast hydrocarbon resources, provided that the proper institutional and policy conditions are put in place.
The report Strategic Significance of National Oil Companies: Lessons for Tanzania is available here
Tanzania has recently discovered huge offshore natural gas fields. This has led the Government to develop local content policies (LCPs) to increase job and business opportunities for nationals in the sector. We study the process behind the development of these policies and the positions of stakeholders. We find that although there is a positive view among domestic stakeholders of imposing such policies, there is much suspicion–to such a degree that it shapes their recommendations of which policies to include in the LCP. One reason is that the Government monopolized the policy development process and abstained from conducting a consultative process. Our findings suggest that future Tanzanian policy development should include in-depth consultations to maximize the decision maker’s knowledge base, add to the transparency of the process and manage expectations. This would also contribute to effective implementation and lessen tensions, conflicts and suspicion among stakeholders.
Read our latest working paper in full text
The Government of Tanzania is looking for the best policies and institutional designs to turn future petroleum revenues into welfare, development and jobs. This Brief from the petro-state programme argues that the Tanzanian society will benefit more by investing in infrastructure, health and education, rather than establishing a petroleum sovereign wealth fund and investing in foreign assets.
Read our latest brief
Many natural resource abundant countries have established sovereign wealth funds as part of their strategy of managing the resource wealth. This working paper by Ragnar Torvik looks into different arguments used as reasons to establish such funds, discuss how these funds are organized, and draw some policy lessons. The paper then develops a theory of how petroleum funds may affect the economic and political equilibrium of an economy, and how this depends on initial institutions. A challenge with petroleum funds is that they may produce economic and political incentives that undermines their potential benefits. In conclusion, the paper suggests that the best way to manage the petroleum wealth of Tanzania may not be to establish a sovereign wealth fund, but rather use revenues to invest domestically in sectors such as infrastructure, education and health. Such investments may produce a better economic, as well as institutional, development.
Read our latest working paper
Huge reservoirs of natural gas have been discovered offshore the southern coast of Tanzania. There are high expectations that exploitation of natural resources will substantially increase Tanzania’s national income. This brief presents results from a recent survey experiment of 3000 respondents in Dar es Salaam, Mtwara gas revenue causally increase expectations about corruption, it has no effect on willingness to pay tax. We argue that successful handling of the gas discoveries should include strategies to keep people’s expectations about future gas revenues realistic and to strengthen the control of corruption.
Not so great expectations: Gas revenue, corruption and willingness to pay tax in Tanzania
This brief examines the factors that have influenced local content in the Tanzanian mining sector, and some of the challenges and successes of local content initiatives in mining. Local content has gradually gained momentum over the last ten years, both among government bodies, companies, and civil society organizations. We argue that there has been a focus on quantity rather than quality in the reporting of local content, that there is a need for stronger regulation of local suppliers to make them adhere to ethical standards, but also that investment in training and local cooperatives can be beneficial for both corporations and host communities.
Programme report: Local content in the Tanzanian mining sector
Huge reservoirs of natural gas have been discovered offshore the southern coast of Tanzania. The country might become a large producer of gas, and a potential exporter of liquefied natural gas (LNG) during the next decades. With this comes the promise of significant petro-revenues and prospects of natural gas-driven structural transformation, bringing with it improved economic and social conditions for the people of Tanzania. However, experiences from other countries suggest that it is challenging to turn natural resource wealth into improved welfare for the majority of citizens. In this brief, we focus on challenges related to the management of government revenues, particularly tax. We argue that continued efforts to expand the non-resource tax base is essential for successful management of the resource wealth.
This paper by Ivar Kolstad and Abel Kinyondo suggests that an optimal local content policy in the context of flawed institutions is a more minimal one than those typically pursued by developing countries with recently discovered petroleum reserves. We argue that local content requirements need to be seen as a public expenditure question: such requirements increase multinationals’ costs and hence reduce the taxes that can be extracted from these companies. There are thus opportunity costs in imposing local content requirements, since the forgone taxes could be used in other ways to improve development prospects. Such requirements can also exacerbate key problems of patronage and rent-seeking.