Last week we were in Dar es Salaam and attended a dinner with a small group of about 15 of Tanzania’s policy, business, and political elite. The dinner was hosted by the Gates Foundation to invite discussion of two new reports on natural resource revenues and their management: this one sponsored by the African Development Bank and the Gates Foundation, and this one providing initial results of a research project we at CGD carried out in collaboration with REPOA, Tanzania’s leading think tank on economic and social issues. The research tested the effect of giving respondents to polling on the use of Tanzania’s expected future gas revenue windfall the opportunity to “deliberate” together compared to respondents who had no chance to deliberate.
In a splendid presentation, Mark Henstridge of Oxford Policy Management summarized the AfDB/Gates report. He emphasized how “big” the expected windfall will be in absolute terms for Tanzania (an average of about $1.4 billion a year over the first ten years), and at the same time how “small”:
as a percentage of GDP in the first 10 years of production, 2 to 3 percent starting in 2024;
in absolute terms per person, $15 to $32 a year (and variable depending on future prices mostly — the IMF projects could be as high as $75), relative to expected future median consumption, now under $1 a day but with projected economic growth could double by 2034; and,
as a percentage of government revenues, at a “mere” 5 percent to 13 percent (especially compared to neighboring Uganda and Mozambique — at as much as 45 percent and 28 percent respectively).
Justin Sandefur then presented the results of our research project which, among other things, revealed respondents' preference for using the new revenues to build up government spending, especially on health and education services.
During the discussion, many of the participants worried about the political challenge of managing expectations. Their worry is reasonable, given two past controversies and the upcoming elections, and was, we sensed, deepened by the reports on the AfDB/Gates study (how small the expected revenue) and on our research (how much Tanzanians want more and better social services).
First, there is general disappointment that the discovery and mining of gold in Tanzania in the past 15 years has been a windfall for the mining companies but not for the people of Tanzania, possibly because the agreements permitting exploration and production made it too easy for the mining companies to over-invoice costs and minimize their resulting taxes on profits.
Second, there is the Mtwara controversy, Mtwara being a region of Tanzania on the southern coast that is the site of an early discovery of offshore gas but is not politically well connected to the rest of the country. Residents of Mtwara expected a surge in jobs and income with construction of a gas processing facility there, and rioted when the energy minister announced in parliament the construction of a gas pipeline from Mtwara to the country’s capital Dar es Salaam and the newly designated Export Processing Zone (EPZ) in Bagamoyo. (In addition, the minister announced that only 0.3 percent of natural gas revenues would remain in Mtwara.)
As campaigns for the country’s presidential elections proceed, Tanzanians are hearing a lot from politicians, especially on how they could be direct beneficiaries of the country's’ prospective natural gas windfall. This revenue, it is predicted, could eliminate poverty, ensure free education for all and more. Our dinner colleagues worried about the reaction when they realize the windfall, for many reasons, is unlikely to ensure delivery on all these promises.
How can worries about misplaced expectations be allayed? Our results suggest Tanzanians are clear about wanting contracts with gas companies published (more on that to come in Part III of our blog post series). Though many are illiterate and have little direct access to the media, they believe transparency will help ensure accountable government. And our result showing that giving citizens information and ample opportunity to deliberate makes a difference means that low levels of schooling and poverty itself need not be barriers to good economic policy in low-income democracies.