21 April 2014

Tanzania: Sovereign Wealth Fund Comes Aboard in October

THE government is formulating legislation for the establishment of a Sovereign Wealth Fund in a bid to manage the proceeds from natural gas.

The upshot is ensuring that the resource benefits current and future generations, President Jakaya Kikwete has said.

The president has revealed that the government would by October, this year or February, next year, move a Bill in the National Assembly for establishment of the fund.

The country has so far discovered 43.1 trillion cubic feet (tcf) of natural gas in offshore and onshore gas fields and exploration is still ongoing.

"Natural gas is not renewable and thus we want to make sure that generations benefit from it through the fund which will be managed by the Bank of Tanzania (BoT)," Mr Kikwete said during a special interview with journalists in Dar es Salaam last week, ahead of the 50th Anniversary of the Union.

He added: "Now that we have already formulated the National Gas Policy, the next move is to formulate the wealth fund." Each year, it will be stipulated through the legislation, a percentage of funds from the wealth fund to be pumped into the national budget, according to President Kikwete.

"We want to avoid what is described in economics as 'the Dutch-Disease.' Following massive discoveries of natural gas in The Netherlands in the 1950s, a lot of focus was put on the sub-sector at the expense of other sectors of the economy," he noted.

In economics, the Dutch disease is the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector and agriculture.

The term was coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of a large natural gas field in 1959.

Discovery of natural gas as well as ongoing exploration offshore and onshore is expected to boost the economy of Tanzania in few years to come, as the resource has multiplier effects in the economy.

During the interview, Mr Kikwete reiterated that Tanzania will only export the gas after exhausting local demand in power generation, producing fertiliser, industrial production and domestic use, among others.

Regarding plans to establish a plant to produce Liquefied Natural Gas (LNG) in the country, President Kikwete said the government has put it to the companies engaged in sub-sector to identify a site to put up the plant, preferably onshore. On the other hand, the president hinted also that plans are underway to set aside one centre of the Vocational Education and Training Authority (VETA) to exclusively train artisans and technicians in the gas sector.

He expressed concerns that the majority of higher learning institutions in the country have of late developed a tendency of training professionals at bachelor degree level and disregarding lower levels.

"An engineer would require an artisan or technician to work with and thus as we train engineers we also have to remember the other lesser experts," he noted.

He added: "Now that University of Dar es Salaam (UDSM) and University of Dodoma (UDOM) are offering bachelor degrees on natural gas, the government may consider having one centre of VETA to train the lower ranks."

The locals also have to benefit from the natural resource through employment much as there is lack of expertise in field and thus need to train more professionals in natural gas and petroleum. "At present, we are sending our people abroad to be trained in the area.

Professionals such as accountants and lawyers are among those trained to be able to manage the resource," he explained.

According to Mr Kikwete, enhancing the capacity of the locals and putting in place a proper monitoring system are high on the agenda to ensure the resource is well managed.

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