LNG euphoria and looming Dutch disease

LNG euphoria and looming Dutch disease

On 11th June 2022, Tanzania and the world woke up to the sensational news of signing of a framework agreement between the Government of Tanzania and Norway’s Equinor and Britain’s Shell, that ushered in construction of a 30 billion US dollar Liquefied  Natural gas (LNG) project slated to be built in Lindi region, Southern Tanzania.

If things will go as planned, operations will start by 2029/2030. The gas project is expected to be lucrative as the Western world is trying to find an alternative source of natural gas after Russia, one of the leading suppliers of the same, appeared to be ruder and less predictable. The rest of the world will also benefit from a 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 so many young people will be employed in the project. With attractive price that the hydrocarbons will generate, living standards of those in the loop will be relatively higher, with the longevity of extraction so many will be pulled in and encouraged to stay more.

Nevertheless, the story on the project is long and no one should be complacent with what is transpiring in the now.

Coined by The Economist, Dutch disease – which is translated by the corporate finance institute 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 is already out of hell at the moment. Early taming is the best thing we can do.

It was observed in 1959 in Netherlands when the country discovered large natural gas fields that increased revenues from exports of its gases national currency appreciated but the manufacturing sector was affected big time.

In 1970s Nigeria was another culprit after it discovered a huge reserve of oil. That which was a bread basket and a net exporter turned out into being a net importer of the same after a significant number of population abandoned farming in favour of luring oil sector. 

In Tanzania, the sector that stands to be affected so dearly is agriculture. It is the sector that employs 65 percent of the population – no sector that comes even closer. Unfortunately, it offers relatively low return compared to others. These factors are anticipated to push so many out of farming. 

The purpose of today’s discussion is to see how we are going to benefit from extraction of these hydrocarbons without endangering food security. While this discuss may not offer comprehensive solutions, I believe that it will ignite desire to dialogue more.

Let’s make agriculture attractive.

We have been so obsessed with an idea that agriculture is the practice of the poor. Yes, we found this narrative but that doesn’t mean that we should propagate it. We have got to graduate from making it look like pastime activity to a money generating venture.

A good amount of foreign currencies generated from export of gases should be put in a sovereign wealth fund or social wealth fund. One of the investment areas should be developing special loan facilities in commercial banks geared for farmers. This money will help them mitigate risks in lending to farmers and so make them lend at a relatively lower interest rates.

While that is an action that is expected to be mooted after starting of operations, some deliberate actions should start now. Part of making agriculture attractive is to improve structure of trade of a number of crops in the country. This will in return make markets (local and foreign) much more predictable.

The move to attract foreign investment in the sector should go hand in hand with efforts to produce local agri-preneurs.

This doesn’t need to take longer, we have got a lot of Small and Medium Entrepreneurs (SMEs) who make shoes out of locally made leathers, process grains, sunflowers and cashews, all these needs to be nurtured through an ambitious national programme in that after ten to fifteen years they should be regional players with ability to employ thousands of employees.

In this way, I believe that African badge of “curse of resources” phenomenon will find its exception in Tanzania.  

Author: Zirack Andrew

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