Can Tanzania Reverse the Curse?
Written by Claire Elverum
March 13, 2017
“This is a new opportunity for Tanzania to benefit from natural resources if managed well, or it can turn into another story of losses like it experienced with gold.”
Natural Resource Curse
It is no secret that resource rich countries in sub-Saharan Africa (SSA) have not experienced rapid economic growth from the exploitation of their natural resources. There are many studies that show a negative correlation between natural resource exports and GDP growth. There are many explanations for this negative correlation.
First, natural resource extraction takes labour and investment away from another industry that might lead to higher growth. Another example is that resource rich countries tend to be associated with authoritarianism and income inequality. With this comes a lack of transparency and accountability in the resource sector, leading to a loss of money into the pockets of political leaders and wealthy individuals.
Tanzania is a SSA country with an abundance of natural resources like coal, tin, phosphates, iron ore, diamonds, gemstones and recently discovered natural gas. Tanzania is the fourth largest producer of gold in Africa and gold is the biggest export of the country at a total of USD$1.5 billion. While this might seem like a large contribution to Tanzania’s economy, this amount could have been much larger. Tanzania is said to have lost at least USD$265.5 million in revenues from large-scarle gold mining companies. If there was more oversight of taxes on companies from tax evasion and a higher royalty rate, Tanzania would have experienced more economic growth.
Natural gas reserves have recently been discovered on and offshore of Tanzania. This is a new opportunity for Tanzania to benefit from natural resources if managed well, or it can turn into another story of losses like it experienced with gold.
It is now said that Tanzania has an estimated 57 trillion cubic feet of natural gas reserves and plans on joining the oil market in 2018. These large reserves are estimated to bring up to USD$6 billion a year. This is an exciting amount because Tanzania has recently been receiving between USD$2 to USD$3 billion a year in foreign aid. The minister said that the natural gas market should play a big role in getting Tanzania to graduate to a middle-income country by 2025, which is the goal of the Tanzania Development Vision 2025.
This is all very hopeful for Tanzania, but back in 2014, a contract between the Tanzanian government, ExxonMobil (US) and Statoil (Norway) was leaked. This contract showed these two oil companies paying Tanzania less than 50 percent of the profits from natural gas that they extract. This sounds like another story of Tanzania not receiving what they should for their natural resources.
Reverse the Curse
Botswana is a SSA country that has successfully avoided the natural resource curse. This is because of efficient managing of its natural resource sector, known for diamond extraction, that was possible because of good governance, political stability and a diversified economic sector. Botswana’s successful management of its natural resource sector can serve as an example to other resource rich countries in SSA, like Tanzania.
Tanzania has the potential to use newly discovered natural gas reserves and pre-existing natural resources as a way to improve its economic growth. If it manages mineral and natural gas wealth efficiently, Tanzania can reverse the curse. Tanzania is making steps to strengthen its governance around the extractive industry sector. The government of Tanzania passed the Petroleum Act 2015, the Tanzania Extractive Industries (Transparency and Accountability) Act of 2015, as well as the Oil and Gas Revenues Management Act of 2015.
These acts are a great first step in better management and transparency of Tanzania’s natural resource sector. More will still need to be done, like stricter regulations on extractive companies, in order for Tanzania to reverse the curse, but it is possible.
Claire Elverum is a former LIDC intern and a Master’s student of Development Studies at SOAS. She loves learning about anything in sub-Saharan Africa, but is mostly interested in East Africa and natural resource management.