Economic powerhouse status beckons Tanzania in a decade

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. Email: [email protected]