Tanzania plans sovereign wealth fund

Tanzania plans sovereign wealth fund

President Jakaya Kikwete said last week that his government was studying various models for managing revenues from gas production, adding that they were focusing on those with sovereign wealth funds.

In various interviews with the Business Standard, analysts said that with revenues management and investments, it was important for the government to start entertaining the idea of a sovereign fund.

"We have seen that in the mining sector where Currently, profits realised from the operations go straight into the Treasury or the Ministry of Finance ,it sometimes creates the sentiment that people don't see where the revenues from the sector go. So this idea is welcome," said Mr Teweli Teweli, a consultant with Africapractice.

He, however, cautioned that it was prudent to establish the Fund and give it mandate by taking off as soon as it is in place. He gave examples of Trinidad and Tobago which have had very successful SWF for oil and gas sectors.

He said a sovereign fund allows a country to save money for future generations; stabilises inflows of cash into the economy to ensure macro-economic stability; while also ensuring balanced national economic development.

Setting up of a sovereign fund, he noted, also prompts creation of institutions and systems to account for and allocate revenues. Giving Tobago's examples, he said best practices on revenue management are available in many oil producing countries.

The Extractive Industries Transparency Initiative (EITI) is a guiding protocol on management and accountability of oil and gas revenue. In an interview, a tax expert with Smile Telecommunications, Mr Boniface Matambula argued that the policy should be clear on how local businesses will participate in provision of logistics services, and how local ventures will be protected from unfair competition from established overseas contractors.

"If we ponder the policies and strategies early enough, we will avoid delays in gas production development ," he said.
He gave Libya's example,which has recently  gone through a tumultuous revolution and in the midst of jumpstarting its banking sector and trying to restart oil operations and focusing on tapping from its sovereign wealth fund to tap for reconstruction and deep reserves of oil underground to continue to fund it.

"For some countries, this is why they created sovereign funds. Sovereign wealth funds have played the roles of saviour and stabilizer in the past, just look at Ireland, China and Kuwait as great examples. A University of Dar es Salaam don, Dr Lenny Kasoga, said the country can use profits from its state enterprises to set up its first sovereign wealth fund that will reinvest the money to advance the country's commercial interests.

The country has recently tripled its estimated gas reserves in June after offshore finds by Norway's Statoil, US group ExxonMobil and Britain's BG Group and its partner Ophir Energy. "We want to learn from them by setting up our own fund to ensure we similarly benefit," said President Kikwete on the Fund. Nigeria and Ghana are also moving towards the establishment of state-owned investment funds for revenues generated from the energy sector.

Mr Kikwete said the government's intention was to ensure natural gas revenues were used to speed up development. "Since 1954 some 61 wells have been drilled. Out of those, natural gas was found in 22 wells ... We haven"t been lucky yet to find oil but we have discovered gas in both onshore and offshore areas," he said.

The recoverable gas reserves stood at 28.9 trillion cubic feet (tcf), Mr Kikwete added. "Offshore oil and gas exploration started in 2004 with just one company but we now have 18 companies. Gas exploration has escalated since the first gas discovery in 2010 ... I believe that a lot more gas will be discovered," he said.

The World Bank says Tanzania is expected to see an increase in revenue of up to $3 billion a year following major offshore gas discoveries in the country. The country needs to strengthen investment in infrastructure, science and technology, engineering and innovation to harness opportunities and transform the country into a middle upper income economy by 2040, officials have said.

Mzumbe's Dr Prosper Ngowi said that the country has huge opportunities in areas of gas, tourism, minerals, mineral development and ICT which can be leveraged on to spur faster social-economic development. He said the gas sector would kick-start growth of the economy but that there is   need to develop supporting infrastructure and legislation.

The National Vision 2025   seeks to transform Tanzania from a peasant and low income country to a competitive upper middle income country within 25 years, with a per capita income of $10,000. According to Simon Johnson , Economic Counselor and Director of the IMF's Research Department, Sovereign wealth funds are a fairly new name for something that's been around for quite a while: assets held by governments in another country's currency.

He says all countries have foreign exchange reserves (these days, they're typically in dollars,euros, or yen). When a country, by running a current account surplus, accumulates more reserves than it feels it needs for immediate purposes, it can create a sovereign fund to manage those 'extra' resources.

"Sovereign funds have existed at least since the 1950s, but their total size worldwide has increased dramatically over the past 10-15 years. In 1990, sovereign funds probably held, at most, $500 billion; the current total is an estimated $2-3 trillion and, based on the likely trajectory of current accounts, could reach $10 trillion by 2012,"he notes. Currently, more than 20 countries have these funds, and half a dozen more have expressed an interest in establishing one.

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