Petroleum fund in Tanzania? Other alternatives may be better

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.

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Should Tanzania establish a sovereign wealth fund?

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

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.

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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.

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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

Not so great expectations: Gas revenue, corruption and willingness to pay tax in Tanzania

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

 

REPOA 21st Annual Research Workshop

Wednesday 6th and Thursday 7th April, 2016

at Ledger Plaza Hotel, Dar es Salaam

REPOA welcomes you to its 21st  Annual Research Workshop.

Since its inception, REPOA has been organizing  the Annual Research Workshop to recognize the importance of taking the opportunity for such a forum to deliberate on broader research and policy issues. The theme for this year’s workshop is “Making Industrialization Work for Socio-Economic Transformation”.

Continue reading REPOA 21st Annual Research Workshop

Local content in the Tanzanian mining sector

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

Tanzania finalises land deal for delayed LNG project

BG Group, being acquired by Royal Dutch Shell, along with Statoil, Exxon Mobil and Ophir Energy plan to build the onshore LNG export terminal in partnership with the state-run Tanzania Petroleum Development Corporation (TPDC). They aim to start it up in the early 2020s. But their final investment decision has in part been held up by delays in finalising issues related to the site.

Tanzania said on Friday it had finalised a land acquisition for the site of a planned liquefied natural gas (LNG) plant and was now working to compensate and resettle villagers to move forward on a long-delayed project.

Tanzania finalises land deal for delayed LNG plot 29-01-16

Non-resource taxation in a resource rich setting: A broader tax base will enhance tax compliance in Tanzania

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.

https://cmi.atavist.com/non-resource-taxation-tanzania

Exploring inclusive development in East Africa

 

500On 11-12th of November, Dr. Abel Kinyondo (REPOA) and Mr. Fred Matola  (National Bureau of Statistic) represented the Tanzania as a future petro-state research programme at a regional dialogue meeting in Entebbe, Uganda. The dialogue sought to explore the potential of achieving inclusive development in the East African region in the face of recent oil and gas discoveries. Discussions focused on the governance of oil and gas sector and examined political, legal and regulatory frameworks as well as civil society initiatives in respect to management and utilization of revenue for the benefits of all citizens. The workshop brought together participants from Tanzania, Uganda, Kenya, Botswana, Ghana, Nigeria, and South Sudan. The event was sponsored by FES, Uganda.