WHAT A YEAR

Tanzania 2018 | DIPLOMACY | YEAR IN REVIEW

Tanzania has posted growth rates well above the Sub-Saharan average over the last five years, yet its plans to reach middle-income status by 2025 will rely heavily on how it manages its newly discovered hydrocarbon wealth.

According to the 2016-2017 Global Competitiveness Report of the World Economic Forum, Tanzania ranks as the 116th most competitive nation in the world out of 138 nations ranked. It also languishes at 132nd among 190 countries in the World Bank's Ease of Doing Business annual study. Yet despite challenges, the Tanzanian economy has grown at an average of 7% over the past five years, putting the nation among the world's swiftest-growing 20 economies, exceeding the Sub-Saharan average growth rate of 4.4%. The IMF also forecasts 7.1% growth for 2017. Other indicators worthy of shouting from the rooftops include inflation, which fell from low double digits in 2011 to single-digit territory by 2016 (as of June 2017, it stood at 5.4%) and FDI inflows, which for 2015 stood at 4.3% of GDP, reflecting the discovery of 45 trillion cubic feet of natural gas.

Notably, in July 2017, President John Magufuli signed off fresh mining legislation, granting the state a minimum 16% stake in related projects. In 1Q2017, Tanzania's GDP contribution from mining stood at TZS486 billion (USD216 million), having averaged TZS293 billion from 2005 to 2017. Yet the new laws, combined with the stepping down of Minister of Energy and Minerals Sospeter Muhongo in May 2017 over transparency issues, have left private players unsure of what lies ahead. New legislation also includes provisions to mandate oil and gas mining companies to be listed on the Dar es Salaam Stock Exchange, as well as limit the ability to export raw materials, in a move interpreted as a safeguard to ensure the downstream development of the nascent hydrocarbons industry.
Furthermore, the new laws offer provisions that can be used to renegotiate or revoke old hydrocarbons and mining exploration and production contracts. They have been designed to ensure the government maximizes the tax returns on these sectors. One of the clauses declares that when the government sees fit to renegotiate an agreement and the other party refuses to address the “unconscionable” terms or no conclusion can be reached, the contracts may be revoked. It is still unclear how these provisions may affect the development of the USD30-billion LNG plant being championed by Statoil, BG (owned by Royal Dutch Shell), Ophir, ExxonMobil, and the national oil company Tanzania Petroleum Development Corporation (TPDC).
Despite consternation over legislation, however, a Uganda-Tanzania oil pipeline agreement and developments in the new LNG facility project, seen as the best way to utilize gas reserves, bode well for a sector in need of breakthrough.
After years of debate, the Ugandan government scrapped its plans to drive a crude oil export pipeline through Kenya and chose Tanzania as the desired route for the development. This was considered a concrete victory for Tanzanian diplomacy and its energy industry. It will be the longest heated pipeline in the world, stretching 1,400km from Uganda's oil reserves in Hoima to the Tanga export terminal on the Tanzanian coast. The USD4-billion project will finally offer a solution to Uganda's estimated 6.5 billion barrels of landlocked heavy crude oil.
As for the much-discussed LNG plant, the TPDC has acquired 2,000ha of land in Lindi for the plant's site, although a final investment decision is not expected for some time. According to the central bank, GDP could be lifted by 9% just during the construction phase of the project, and the IMF had earlier estimated (before new legislation on royalties) that tax revenue coming from the exploration of the gas reserves through an LNG facility could grow by USD3 billion to USD6 billion, meaning a rise in tax revenue between 40-90% according to year-end results in 2016 of USD6.6 billion.
Behind the most significant developments in Tanzania of late is President Magufuli, whose presidency has been nothing if not colorful. But he has not only been shaking things up on the domestic front; Tanzania's foreign affairs over the past two years have been almost inseparable from developments stemming from the president's office. Whether it was increased trade and transport ties with China and Turkey, the opening of the first Israeli visa processing center in the country, or major energy infrastructure projects with neighboring Uganda, the country has maintained relations with all its major allies and strengthened them with several new ones.
Relations with its neighbor, Kenya, have been less buoyant. Back in March, Magufuli came under attack from his counterparts in Nairobi for assuring a group of Kenyan doctors during the height of the 100-day doctors' strike that they could be given employment in Tanzania. This only iced the already frosty ties between the two giants. Ambitious in form if not yet in content, the two are the backbone of the East African Community (EAC), a body founded in 2000 with the goal—in theory—of moving gradually toward a single market and currency.