Why Tanzania should establish sovereign Wealth Fund

DAR ES SALAAM: Tanzania has a strong economic case for using a sovereign wealth fund (SWF) to convert part of its finite natural resource wealth into permanent financial wealth for future generations. This is particularly relevant as Tanzania develops its natural gas, mining and other extractive resources.

The key principle is:

‘Do not consume all of Tanzania’s underground wealth today; convert part of it into financial, human and productive assets that can benefit Tanzanians for generations.’

Tanzania’s growing natural gas, mining and mineral wealth represents a one-time opportunity: Resources extracted today cannot be extracted again by future generations. A sovereign wealth fund converts finite, depleting resource wealth into a perpetual financial asset allowing the country to benefit from its natural resources indefinitely rather than only once. The following are key benefits that will allow Tanzania to enjoy the benefits of creation of SWF in Tanzania:

Core benefits for Tanzania:

• Intergenerational equity: Once gas, gold, or minerals are extracted and sold, that wealth is gone unless converted into financial capital. Natural gas, gold and other minerals are exhaustible. Tanzania cannot extract and sell the same resource indefinitely.

The IMF has noted that Tanzania’s gas-resource revenue horizon could be relatively limited around 30 years in its 2023 analysis. An SWF can convert part of today’s resource receipts into financial assets that continue generating returns after the resources decline. A SWF ensures future Tanzanians inherit an asset, not just a depleted resource base.

• Avoiding the resource curse: Commodity-driven revenue avoids currency over appreciation (Dutch disease), which can undermine agriculture, manufacturing and tourism exports by making them less competitive.

• Fiscal stabilisation: Gas and mineral revenues fluctuate with global prices. A fund allows government to save in boom years and draw down in lean years, smoothing the national budget rather than lurching between windfalls and shortfalls.

Oil, gas and mineral prices fluctuate considerably. If government expenditure rises when commodity prices are high and collapses when prices fall, fiscal planning becomes difficult.

A stabilisation component of an SWF could provide a buffer during: Commodity-price downturns; economic recessions; natural disasters; external shocks and temporary reductions in government revenue. Tanzania’s own earlier oil-and-gas revenue framework recognised the need to stabilise government expenditure against resource-revenue volatility.

• Spending discipline: A rulesbased fund (like capped annual withdrawals) insulates resource revenue from short-term political pressure to overspend, directing it instead toward long-term productive investment in infrastructure, education and health.

• Diversification of national wealth: Investing surplus revenue in a diversified global portfolio reduces Tanzania’s economic exposure to a single extractive sector, spreading risk beyond commodities whose demand may shift over time. The country would gradually transform: Natural resources – Government revenue – Sovereign investments – Financial returns – Permanent national wealth. This is essentially the intergenerational-equity principle highlighted by the IMF for resourcerich economies.

• Reduce dependence on future borrowing: If Tanzania accumulates financial assets during periods of high resource revenue, those assets can eventually provide income to the government. That can reduce pressure to borrow for every major economic shock or development requirement. Importantly, Tanzania should avoid the situation where it simultaneously has substantial sovereign financial assets and unnecessarily expensive

• What could Tanzania put into the fund?

A possible Tanzania Sovereign Wealth Fund model, I would consider a structure along these three lines:

Stabilisation Fund, Tanzania future generations and strategic Tanzania/Africa portfolio whose ownership belongs to the United Republic of Tanzania:

Funding sources:

• LNG/natural gas revenues;

• selected mining revenues;

• petroleum revenues;

• dividends from designated strategic state assets

• exceptional privatisation proceeds, where appropriate

• investment returns

Three likely portfolios structure should be under the following prerequisites: Stabilisation portfolio: 20–30 per cent

• Highly liquid international assets.

• Purpose: protect the budget from shocks. Future generations portfolio: 50–60 per cent

• Long-term global diversified portfolio.

• Purpose: Create permanent national wealth.

Strategic Tanzania/Africa portfolio: 15–25 per cent.

All commercially viable investments in infrastructure, productive industries and selected African opportunities should be considered and whose returns will contribute to economic transformation while earning financial returns.

These percentages are illustrative, not a recommendation of a specific allocation.

A credible Tanzanian SWF would therefore need:

• an independent professional investment board;

• parliamentary oversight;

• audited annual accounts;

• international investment standards;

• transparent disclosure of holdings;

• published investment policy;

• clear deposit and withdrawal rules;

• independent external investment managers where appropriate;

• conflict-of-interest rules;

• strict limits on politically directed investments;

• a prohibition on using the fund to bypass the national budget. This is consistent with the IMF’s view that Tanzania needs a fiscal framework balancing investment, saving, volatility and the exhaustibility of gas revenues.

How other countries have benefitted

Sovereign wealth funds have delivered measurable, long-term national benefit in countries with disciplined governance frameworks. Three examples are particularly instructive for Tanzania’s context.

Country / Fund

Established / Source

Scale Today

Demonstrated Benefit

Norway (Government pension fund global)

1996; oil and gas revenue

≈ 2.3 trillion US dollars (2026) world’s largest SWF, (about 1.3–1.5 per cent) of all listed global equity funds a substantial share of the annual state budget without raising taxes; per-capita national savings exceed 28,000 US dollars shields the economy from oil price swings.

Botswana (Pula Fund)

1993–94; diamond export revenue

≈ 3.5–5 billion US dollars, managed by the Bank of Botswana widely cited as Africa’s governance success story: Diamond wealth channeled into national development and savings; created a stabilisation buffer against mineral price shocks and reduced reliance on a single commodity.

UAE (Abu Dhabi) (Abu Dhabi Investment Authority)

1976; oil revenue Estimated 900 billion US dollars diversified the emirate’s economy well beyond oil through large-scale global investment, funding infrastructure and reducing dependence on hydrocarbon exports as the primary income source.

Key lesson across cases:

The common thread is not the size of the resource endowment but the strength of the governance framework: Legally mandated savings rates, restricted withdrawal rules, transparent reporting and investment mandates that keep the fund’s assets largely outside the domestic economy (to avoid overheating it). Norway succeeded because these rules were enforced consistently for three decades. Botswana’s experience is more cautionary: Without stricter statutory limits on withdrawals, the Pula Fund shrank relative to the economy and required a 2025 relaunch of a new fund with a stronger governance mandate, a reminder that a SWF’s benefits depend entirely on discipline, not just its creation.

Tanzania’s current position

Tanzania already established the Natural Gas Revenue Fund (NGRF) in 2015, managed by the Bank of Tanzania, but it has remained small because commercial-scale gas production has not yet materialised. This places Tanzania at an early, formative stage similar to where Botswana and Norway stood decades ago with the opportunity to design strong governance rules from the outset rather than retrofit them later.

Conclusion

A well-governed sovereign wealth fund would let Tanzania convert today’s finite natural gas and mineral wealth into a lasting financial asset smoothing fiscal volatility, protecting the broader economy from resource-driven currency swings and ensuring that future generations of Tanzanians share in the benefit of resources being extracted today. The evidence from Norway, Botswana and the UAE shows this works but only where the enabling legislation is strict, transparent and consistently enforced from the start.