By GEORGE WACHIRA
In Summary
The economic activities currently taking place in
Tanzania point to a country that in 10 years time will have
substantially climbed the economic development ladder.
My judgment is based on the extent of extractive resource
development already taking place. It is also reinforced by the ongoing
efforts by President John Pombe Magufuli to instill discipline in public
resource accountability.
The World Bank 2015 statistics indicate that Tanzania’s gross domestic product (GDP) grew by seven per cent.
For some time it is the mining sector that has
dominated Tanzania economy, especially in areas of exports, jobs and
enterprise. With a well structured and tested mining, legal and
regulatory framework, the sector continues to attract investments.
In addition to the more established minerals —
gold, diamonds, nickel — it is the planned exploitation of industrial
minerals such as coal, iron ore and uranium, among others, that is bound
to make wider economic impact, especially in respect of power
generation, steel and cement industries.
However, a much bigger economic narrative is in the
hydrocarbon extractive sector taking place in the offshore and coastal
areas of southeastern Tanzania. About 57 trillion cubic feet of natural
gas have been discovered with prospects for more finds.
Unlike crude oil, natural gas has a much higher capacity for value addition to the local and national economies.
While crude oil is commercialised only through
refining and into mainly transportation fuels, natural gas can be
diversely commercialised locally through many economic sectors. And this
is already happening in Tanzania.
Natural gas production in Tanzania shall be
apportioned between local consumption and exports. Local applications
include power generation and to date 711 megawatts of Tanzania’s power
generation is from natural gas and this is 55 per cent of national
generation mix. This has provided the country cheaper energy by
replacing thermal generation from imported oil.
Large industries in the coastal areas are either
hooked or planned to be connected to natural gas distribution systems
for energy supplies. Natural gas will most likely make cement produced
in the coastal areas of Tanzania the most competitive in the region.
Plans are in progress to connect natural gas to
hotels, institutions and selected home areas. Compressed natural gas is
also being introduced into Dar es Salaam public transport buses.
Natural gas is a raw material for petrochemical
industries such as fertiliser, industrial alcohol, synthetics, and
plastics. Processing of “wet” natural gas also yields LPG (cooking gas)
which is in high demand in the regional markets.
A $3 billion (Sh300 billion) fertiliser plant in
Lindi is already committed by European and Pakistan investors to feed
into the East African Community (EAC) and Southern African Development
Community (SADC) agricultural markets.
Natural gas and air are the two raw materials for making ammonium and urea fertilisers.
When liquefied natural gas (LNG) is finally
exported by 2025, it shall boost the Tanzanian economy with massive
receipts of foreign exchange.
But prior to this, the construction of the LNG
processing and export facilities in Lindi shall create many technical
skills and jobs while proving capacity for support enterprises. Spurring
the previously sleepy coastal southeastern corner of Tanzania into a
new economic zone.
From resource governance point of view natural gas, unlike crude oil, has less capacity to attract resource corruption.
This is because natural gas blends very much into
the local utilities and industries without need for corrupt commodity
transactions and traders.
Exports of LNG shall be by credible multinational
investors such as ExxonMobil, Shell and Statoil, among others direct
into global markets.
Tanzanian interests in the natural gas value chain
shall be sufficiently represented through the direct participation of
the Tanzania Petroleum Development Corporation, and this offers good
checks and balances.
Although natural gas commodity markets have
historically been indexed to oil prices, natural gas is less impacted by
the ongoing oil market stumble.
For this reason, the well capitalised multinational
investors are able to take long term views and investment decisions on
Tanzania natural gas development without significant delays. This puts
more certainty to project completion time lines.
So far, President Magufuli appears to be “investor
friendly” which is an essential starting point for a nation seeking to
attract and sustain foreign direct investments.
The president seems to detest time wasting official
bureaucracy, and has also embarked on a crusade to fight corruption at
its roots.
Accountability in public resource management is a prerequisite for a nation intent on sustainably growing its economy.
There are other areas such as infrastructure (ports
and railways) that Tanzania is working on to provide linkages with both
SADC and EAC countries. Tanzania borders eight nations, which offer
trade and transport opportunities.
I have deliberately avoided comparing Tanzania with
any regional neighbour. This is because each nation has different
economic opportunities and challenges.
Also, each country has a unique leadership style
that differently defines its economic priorities and paths to their
planned economic destinations.
Mr Wachira is a director at Petroleum Focus Consultants.
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