Demographics is of course a challenge exercising the minds of policy makers globally - whether the challenge of declining and ageing populations in developed jurisdictions, or fast growing populations in developing economies especially within Africa which, with almost 60% of Africa’s population under the age of 25, is the world’s youngest continent.
Defying the expression “size is a matter of perspective”, two recent reports highlighted numbers for Tanzania that in terms of scale were objectively huge even in a global context, and potential game changers for Tanzania’s future.
October 2022 saw the release of the census results for Tanzania showing a population of 61.74 million. The same month also saw the launch of the report “Tanzania LNG: A Macroeconomic Study” in relation to the projected $32.7bn Tanzania Liquefied Natural Gas (TLNG) project, which included some huge headline numbers in relation to macroeconomic benefits (based on four separate modelled price scenarios for the LNG output). Given the potential for TLNG to catalyse economic growth and related revenues and employment, the close timing of the publication of these two reports is propitious.
Demographics is of course a challenge exercising the minds of policy makers globally - whether the challenge of declining and ageing populations in developed jurisdictions, or fast growing populations in developing economies especially within Africa which, with almost 60% of Africa’s population under the age of 25, is the world’s youngest continent. Looking forward, projections on the United Nations Data Portal Population Division show Tanzania’s population increasing by 2050 to 130 million, and by 2100 to 245 million (with a similar combined number by then for Kenya 113 million and Uganda 132 million).
So the challenge is to ensure that this growth catalyses a demographic dividend (rather than disaster), by marshalling the appropriate resources (education, health, infrastructure) to ensure that the population is adequately equipped to progress their economic well being. In this regard, perhaps the first number to grab the attention of policy makers would be the impact on fiscal proceeds arising from TLNG, which depending on the price scenario are projected at between $2.2 billion pa to $6 billion pa.
To put this in perspective, the 2022/23 domestic revenue target is Sh28 trillion ($12 billion) (of which tax revenue is Sh23.6 trillion ($10 billion).
TLNG would also embed greater resilience in relation to our balance of trade, with the balance of payments expected to benefit by between USD3.4bn and USD8.2bn pa (depending on the price scenario). By comparison, the most recent numbers for the year to November 2022 (shown in the Bank of Tanzania (BoT) Monthly Economic Review for December 2022) show the big ticket items generating foreign exchange earnings as follows: gold $2.8 billion, tourism $2.4 billion, transport $1.9 billion, manufactured goods $1.6 billion.
The current projected long term GDP growth rate of six percent is also projected to increase significantly as a consequence of TLNG to between 6.5 percent and 7.5 percent. Importantly the report highlights that just under half the GDP benefits (43 percent to 48 percent) would accrue to sectors other than oil and gas, and that TLNG would have a significant impact on employment (with on-site, supply chain and economy-wide job opportunities within Tanzania projected at between 277,356 and 647,048 depending on the price scenario).
To put the estimated $32.7 billion TLNG investment sum in context, it is roughly equal to government debt as at the end of November 2022 (per the BoT MER for December 2022) which showed external debt of $20.5 billion and domestic debt of Sh26.6tn (approximately $11.4 billion).
So, yes the numbers are compelling for Tanzania - and certainly this is an opportunity we must embrace, not least given our population dynamic, but also given the global perspective with the aspiration for continued access to reliable and price competitive energy sources that at the same time take into account environmental considerations. In this regard, the report notes natural gas-fired power emits up to 60 percent fewer CO2 emissions than coal-fired power, and so a key argument in favour of LNG’s international sale is that it facilitates coal to gas (CTG) switching by the global power sector and reduces CO2 emissions whilst still facilitating economic growth (through the provision of adequate, reliable power to growing economies).
October 2022 also saw the publication of PwC “Africa Energy Review 2022”, which noted that “countries with sizeable offshore gas reserves, including Mozambique, Tanzania, and Senegal, could also see renewed investor interest” but also cautioned that “despite the short-term increased demand, natural gas still has a limited window of opportunity when considering the emissions impact of natural gas against a global Net Zero target” and that “as such the timing of new Africa projects is critical”.
So, where are we with the process? The report assumed the signature of the final Host Government Agreement (HGA) in late 2022 or early 2023, paving the way for an expected Final Investment Decision (“FID”) in January 2025 followed by production from 1 January 2030 (following completion of the development) until 31 December 2059. Media reports in late December 2022 stated that the anticipated final HGA signature, originally anticipated for that month, would most likely take place in February 2023. Hopefully, this month will see good news on this front!
