Tanzania: putting its foot on the gas

A. H. Saleh

Recent discoveries of gas look set to give the country an economic boost, along with investment from Scandinavia and Nigeria that has helped to grow the industrial sector. Tanzania is finally drawing level with long-time rival Kenya 

In terms of regional rivalry, Tanzania has been the tortoise to Kenya’s hare. The country wasted decades pursuing a disastrous social policy that included collectivisation and wholesale nationalisation of virtually all productive processes. But bureaucrats, party officials and trade unionists had neither the knowledge nor the capacity to manage often complex industries and productivity practically ground to a halt, leading to severe shortages and widespread corruption. 

Emmanuel Ole Naiko, the former executive director of the Tanzania Investment Centre (TIC), says that private companies had been closed down in 1967 and “the private sector wasn’t allowed to participate in the economy prior to 1990”. TIC was established in 1990 to revive the private sector but, he says: “When we started, we met a lot of resistance because of various legislation that conflicted with the spirit of inviting the private sector to do business.” 

Following a national debate, a new, more business-friendly investment code was established, but it took another ten years before investors began moving in. 

As socialism was finally being laid to rest and a liberalised market economy beginning to take root, the economy began to pick up, thanks largely to improving gold prices – Tanzania is the third largest gold producer in Africa – increased private consumption and greater volumes of fixed capital. Growth averaged seven per cent in the late 1990s and, after a dip in 2009 following the global economic crises, has returned to seven per cent. 

A vast expansion of the private sector has been the principal driver of growth and, although gold prices have dipped over the past year, Tanzania is expected to maintain its growth trajectory over the next five years at least. The game changer for Tanzania has been the discovery of vast volumes of natural gas, both onshore and offshore. Properly managed, this should provide the shot in the arm the country needs to aim for double-digit growth leading up to 2025. 

The volume of reserves has been estimated at around 50 trillion cubic feet (tcf), but the country’s Energy Minister, Sospeter Muhongo, has said: “It is expected that Tanzania’s natural gas resources will rise to 200 tcf after the next two years.” While this may sound too optimistic, there is more than sufficient gas to attract the attention of some of the world’s biggest players. 

Tanzania has currently licensed 16 international energy companies to search for oil and gas. British gas firms BG Group and Ophir Energy, Norway’s Statoil, Brazil’s Petrobras, Royal Dutch Shell and Exxon Mobil Corp are among companies already operating in Tanzania. BG and Ophir control 15 tcf off the Tanzanian coast and have announced plans to build a US$10 billion LNG plant in southern Tanzania to ship gas to Asia where demand is high. 

In November, Ophir Energy sold a 20 per cent stake in three natural gas blocks to Singapore’s state-owned Pavilion Energy for $1.3 billion. This, the first major deal in the country’s natural-gas sector, could be the forerunner of similar deals in the future. Pavilion said: “The natural-gas developments in Tanzania hold tremendous potential – not just for Pavilion Energy, but for Singapore and Asia.” Singapore generates most of its energy from gas. Japan, which will depend more heavily on gas as it winds down its nuclear fuel programme, is already active in Mozambique, Tanzania’s southern neighbour which has also discovered vast quantities of natural gas. Projections are that, with combined output from the two countries, Africa could become the third largest producer of natural gas in the world. 

But the excitement generated by the discoveries has led to heated debates about who will get what from the bonanza. There are suspicions that foreign companies will pocket the lion’s share of the spoils and little will trickle down to the people. In a bid to allay fears, President Jakaya Kikwete said: “The production-sharing formula will either be 35 per cent to investors and 65 per cent to the government or 25 per cent to them and 75 per cent to us,” while launching the fourth and final licensing round, which will run until mid 2014. He has also said that the government will look at the possibility of making shares available in the Tanzania Petroleum Development Corporation “if we want more Tanzanians to participate in the oil and gas industry”. 

The country’s new gas policy is also very clear that a good part of the gas will be used domestically, which will hopefully end the consistent power outages that have badly stymied industrial output. By-products of the gas will also be used to produce much-needed fertiliser. Despite Tanzania’s steady growth, poverty levels and unemployment have hardly budged since the 1990s, largely because, according to the African Development Bank, the agricultural sector, which employs around 80 per cent of the population and contributes 40 per cent to the GDP of around $30 billion, is seriously underdeveloped. 

Yara International, a Norwegian fertiliser company, has announced that it is to set up a multi-million dollar plant in Tanzania. The country director for Tanzania, Pål Øystein Stormorken, says that the development of the gas sector will be a tremendous boost to fertiliser production. “If we are to set up a fertiliser plant here, it is not going to be for Tanzania alone. We will export our products to other East African countries and the rest of the continent. In other words, it must be a large-scale fertiliser plant. That’s why we have to be satisfied with the availability of the basic raw material [natural gas],” he added. 

Nigeria’s Dangote Cement has invested $500 million in a new plant in Mtwara, which, at full capacity, will produce three million tonnes a year. The aim is to satisfy the current supply deficit, which is slowing down the pace of construction in Tanzania. At full production, cement could be exported to the country’s neighbours. 

In what is considered a coup over tech-savvy Kenya next door, Nordic Computers has announced that it will assemble personal computers in Dar es Salaam. Company director Simon Vestergaard says its computers will not only be of the same or better quality than competing international brands, but that a superior warranty service will give them a key advantage in the market. 

Another point of pride for Tanzania is that, for the second time in f ve years, its tourism sector has outperformed Kenya. In 2012, the country earned $1.56 billion from the sector compared to $1.3 billion earned by Kenya. Tanzania has 31,365 hotel rooms compared to Kenya’s 24,354, but the sector is still not as slick as that in Kenya. Plans to reorganise the sector could well make this country, with its wealth of national parks, second only to South Africa in terms of tourism in Sub-Saharan Africa. An expansion of the sector will also generate much-needed jobs. 

Although Tanzania started slowly compared to Kenya, it has been catching up and is now keeping up pace step-for-step with its northern neighbour – the tortoise, as in the fable, seems poised to win the regional race. 


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