msemakweli
JF-Expert Member
- Feb 20, 2014
- 1,627
- 880
Economic analyst proposes a robust policy that clearly outlines how the country manages this anticipated wealth
Tanzania has the potential to earn between $3 billion and $6 billion annually from natural gas, but the country must proceed cautiously on how this income is managed or risk more problems than ever before.
Experts from the Natural Resource Governance Institute (NRGI) also cautioned in Dar es Salaam on Wednesday that the people should not expect all of this to translate into prosperity automatically. If anything, mismanagement of income from natural gas might subject the country to what is known as resource curse or Dutch Disease.
Dutch Disease refers to the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil or gas reserves. The currency inflows lead to currency appreciation, making the country's other products less price-competitive on the export market.
Resource Curse, or the Paradox of Plenty, refers to the contradiction that arises when countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, have less economic growth and worse development outcomes than countries with fewer resources.
"There are many things that need to be done in order to ensure that this revenue windfall benefits the country and its people," said NRGI economic analyst Thomas Lassourd when briefing editors on how Tanzania can effectively manage its boom in natural wealth.
Mr Lassourd proposed a robust policy that clearly outlines how the country manages this anticipated wealth.
The government could establish a Sovereign Wealth Fund but this, in itself, should not be taken as a guarantee that natural gas will benefit the country and people. A number of countries established such a fund but could not benefit from it because the fund was mismanaged.
Tanzania has proven reserves of natural gas amounting to around 50 trillion cubic feet but exploitation on a large scale has yet to start.
According to Tanzania Editors Forum (TEF) Chairman Absalom Kibanda, the country can benefit from natural gas only if there is a strong policy on how such wealth is to be utilised for the benefit of all.
Mr Deodatus Balile said the policy on management of gas income should explicitly state how and where the money earned from natural gas would be spent. "It will be very dangerous not to put that in our policy," he warned.
"Not setting such things in absolute terms will be creating avenue for people to squander the money." A seasoned journalist specialising in the environment and natural resources, Dr Deodatus Mfugale, said the policy should also factor in the future needs of the country. "We are talking about a natural resource which does not last, so we cannot afford not to think of the future in our plans," he stressed.
Another NRGI expert, Mr Rajkumar Singh, said establishing a Sovereign Wealth Fund (SWF) was one of the best ways of managing revenue from natural resources, but how the fund is managed determines whether or not the nation benefits. SWF comprises a pool of funds derived from a country's reserves and set aside for investment purposes that will benefit the economy and citizens in the long run.
The Citizen on Saturday understands that the government is drafting a policy that will specify how the income from natural gas is to be managed. It is a requirement in the recently-introduced natural gas policy. Officials of the ministry of Finance were unavailable for comment.
According to Mr Singh, revenue from natural gas is likely to be higher than the mining sector experience and it is critical, therefore, that the country develops a robust revenue management policy. Such a policy should include SWF and detailed fiscal rules, an institutional framework and oversight mechanisms needed to govern savings and spending.
"It must also take into account the high development needs in the country, international fairness and demands for transparency and accountability," he said. "While government officials, politicians and the general public may expect spending to improve social services, the result instead may be a rise in domestic wages and prices without any substantial development outcome."
Source: thecitizen
