The cause of Tanzania's "resource Nationalism"

Tanzania's SGR: under Construction

According to a recent report on the Construction Magazine, www.constructioreviewonline.com, the 300 Kilometre Dar-Es-Salaam –Morogoro Standard Gauge Railway Line will cost US$1.9 billion.  And in a video clip Broadcast by Tanzania Railways Corporation, TRC, https://www.youtube.com/watch?v=vrcv3CBi63E, the line, the Minister said, was funded by the Tanzania taxpayer.

Eureka! East African watchers say. “This explains the sudden surge in resource nationalism in Tanzania,” said a Nairobi based economist. The line attracted no takers after the

fallout with the Chinese in 2015. Yet implementation still went on and the financiers were a mystery.

The project was too pricey for the Tanzania budget which was US$15 billion in the 2018/2019 financial year, data crunchers say. Of this, $5.8 billion was set aside to finance development projects,-roads, airports, schools, hospitals, and the Railways line. At $1.9 billion, the line gobbled up $664 million a year since 2016/2017 financial year. That is whopping 11 to 14 percent of the development budget!

Is it a coincidence then that resource nationalism surged at about the same time? Wondered a trade expert based in Kampala, Uganda. Resource nationalism involves, but is not limited to, what economists call “Obsolescing Bargain.”  This is a situation where the investor loses the bargaining power to the host government once the investment is in place and cannot be transferred elsewhere. It is, put simply, the ability to blackmail and extort.

 Tanzania has exploited this power ruthlessly. President Magufuli came into office promising to be the new broom that will sweep the country of corruption. And fighting corruption has become the mantra exploited to extort and blackmail investors to submission.

 The Bulldozer: 
Tanzania's President Magufuli

 Two well –known cases come to mind: The worst casualties of blackmail were the Mining sector where the largest gold miner, Acacia Mining Plc  was handed a $190 billion tax bill, saying the gold producer had falsely declared bullion exports since 2000, a claim the producer denied. The state later settled for a $300 million tentative payment after a meeting between Magufuli and the president of parent Barrick Gold Corp reported Bloomberg.

This demand jolted investors in Tanzania some of whom held back their investment plans while foreigners seeking to invest in the country returned their proposals to the shelves. US$ 190 billion is 3.8 times larger than Tanzania’s current GDP, estimated at US$50 billion. Spread over 17 years, this demand comes to an average tax bill of $11.2 billion a year.  Given that the government budget has just crossed the US$14 billion mark, then Acacia Mining Plc taxes could fund the government’s budget for whole years since 2000! That, observers say, is fantastic.

The most recent case is the extortion to Bharti Airtel, the Indian mobile telephone company. The firm had to cede 9 percent stake to the government-owned TTCL, cancel a US$407 million the government owes Airtel Tanzania, the local outfit; Pay US$2 million in penalties and good will, pay$4.4 million in unearned dividends over the past ten years, and a total of U$26 million broken into 60 tranches of US$434,000 of unknown budgetary vote, the local press reported. All to resolve a dispute over the ownership of the company which the Tanzania government claims it was cheated out of during the transfer of the company from Celtel to Airtel.

PresidentMagufuli bluntly told the press that he would have de-registered the company had it sought international dispute resolution. This, East Africa watchers say, is a pointer to what foreign investors are going through in Tanzania whenever a dispute arises. The government holds a gun over their heads during the negotiations!

Apparently, the government has found a way of raising some of the funds it needs to support its development programs through extortion. 

And to cover its back, in July 2017, Tanzania enacted three laws asserting “permanent sovereignty” over its natural resources including oil and gas while drastically amending the country’s mining code. Together with new regulations, the laws allow the government to renegotiate an investor-state contract terms that parliament deems “unconscionable”, and impose quotas for the procurement of local goods and services, and employment of local personnel. The government is also entitled to a free equity interest of between 16 percent and 50 percent in mining groups, which are prohibited from suing the

state in courts outside Tanzania.

The economic damage caused by Tanzania’s policy shift is glaring. According to IMF, the country’s GDP growth rate has faltered, declining to an estimated 4 percent over the next four years, from 7.2 percent in 2015.  The country has slipped from the second fastest growing economy in East Africa to the fourth.

Despite vehement denial by the government, the evidence is visible. The budget this year grew by 1.5 percent to $14.4 billion down from $14.5 billion last year. In terms of Tanzania shillings, the budget expanded by only Tsh 500 billion over the last Financial year.