LNG blessings and its ramifications in agriculture

MORE than three years ago, on this very platform, I discussed the 30 billion US dollars Liquefied Natural Gas (LNG) project that is to be built in the Lindi region of Southern Tanzania and how it stands to affect the agricultural sector, the leading employer in the country.

At the time, progress was relatively impressive, but it has since slowed down a bit, albeit with high-level talks continuing between Tanzania, Norway’s Equinor and Britain’s Shell, according to official reports from the nation’s Ministry of Energy. If things go as planned, production will kick off by 2030.

The project is expected to be lucrative as the Western world strives to become independent of Russia’s natural gas, one of the world’s top supplies of the resource, but one perceived as less friendly and more belligerent.

The rest of the world will also benefit from relatively cheaper gas thanks to an increased supply. While it is unclear how many jobs direct and indirect will be created, it is without doubt that many young people will be employed in the project. With the attractive prices that hydrocarbons will generate, living standards of those directly involved will rise.

And with extraction expected to last for decades, many will be drawn in and encouraged to remain in the sector.

Nevertheless, the story of this project is long and no one should be complacent about what is transpiring now. Coined by The Economist, “Dutch disease” which the Corporate Finance Institute defines as an economic phenomenon where the rapid development of one sector of the economy (particularly natural resources) precipitates a decline in other sectors is a spectre that already looms large.

Early intervention is the best course of action. This phenomenon was first observed in the Netherlands in 1959, when the discovery of large natural gas fields boosted export revenues, causing the national currency to appreciate.

However, the manufacturing sector suffered significantly. In the 1970s, Nigeria became another case study: After discovering huge oil reserves, what was once a breadbasket and a net exporter of food became a net importer, as a significant portion of the population abandoned farming for the more lucrative oil sector.

In Tanzania, the sector that stands to be most affected is agriculture. It employs 65 per cent of the population far more than any other sector. Unfortunately, it yields relatively low returns compared to alternatives. These factors are expected to push many people away from farming. The purpose of today’s discussion is to consider how Tanzania can benefit from hydrocarbon extraction without endangering food security. While this discussion may not offer comprehensive solutions, I believe it will ignite a desire for further dialogue.

Making agriculture attractive

We have long been obsessed with the idea that agriculture is the occupation of the poor. Yes, we inherited this narrative, but that does not mean we should continue to propagate it. We must graduate from portraying farming as a pastime to establishing it as a profitable and sustainable business venture.

A portion of the foreign exchange generated from gas exports should be allocated to a sovereign or social wealth fund. One investment priority should be the creation of special loan facilities in commercial banks geared toward farmers.

Such funds would help banks mitigate lending risks and enable them to offer loans at relatively lower interest rates. While those measures may only be implemented after operations begin, some deliberate actions should start now. Part of making agriculture attractive is improving the structure of trade in a variety of crops.

Doing so would make both local and foreign markets more predictable. Efforts to attract foreign investment in agriculture should go hand in hand with programmes to nurture local agripreneurs. This does not require decades of preparation. Tanzania already has many small and medium enterprises (SMEs) producing shoes from locally sourced leather, processing grains, sunflowers and cashews.

These businesses need to be supported through an ambitious national programme so that within ten to fifteen years they can become regional players capable of employing thousands. In this way, I believe the so-called African “resource curse” could find its exception in Tanzania.