Tanzania: Updated Assessment of the Impact of the Coronavirus Pandemic on the Extractive Sector and Resource Governance

This is one of a series of country briefings produced by NRGI to summarize the evolving situation with respect to the pandemic and its economic impacts. The analysis it contains is subject to change with circumstances, and may be updated in due course.

Key messages

• Tanzania faced lower GDP growth in 2020, but the country’s short-term economic outlook is not as challenging as that facing many other resource-rich countries, partly due to the high price of gold.
• Tanzania’s four large-scale gold mines are benefitting from globally high gold prices and the resumption of exports of gold as Tanzania has lifted its international travel bans. There has also been a considerable reduction in the disruption of supplies with the easing of international flight restrictions elsewhere around the globe and mining companies are also stockpiling supplies. 
• The pandemic’s global economic impact could further delay Tanzania's long-awaited offshore liquefied natural gas (LNG) project. Once negotiations resume, the government may be in a more challenging position due to low oil and gas prices.
• President Magufuli, reelected on 28 October, is unlikely to prioritize the LNG project, but instead focus on the mega hydropower generation project—the Rufiji Hydro Power Project—to meet Tanzania’s electricity needs.
• Following the pandemic, the government may turn to the mining sector to capture more benefits, but the viability of this approach requires further analysis.

Summary of economic impact of the coronavirus pandemic

The government of Tanzania has not released any statistics on the number of coronavirus cases or deaths since April 2020, and in July 2020, President Magufuli declared Tanzania free of coronavirus. Although it is difficult to determine the level of infections in the country due to lack of data, it is likely that the coronavirus may have already peaked in Tanzania like in many other African countries.

Despite the pandemic, in July 2020, Tanzania was assigned lower middle-income status status by the World Bank. Tanzania’s gross national income (GNI) per capita as at 1 July was USD 1,080 and falls within the new lower-middle income threshold ranges of USD 1,036–4,045.

According to World Bank projections, however, Tanzania’s real GDP growth will slow to 2.5 percent in 2020. The IMF forecasts real GDP growth of 1.9 percent, in 2020, 3.6 percent in 2021, and gross government debt levels as a percentage of GDP of 38.5 percent and 39.25 percent in 2020 and 2021 respectively. In June 2020, the IMF approved a USD 14.3 million debt relief under the catastrophe containment and relief trust, which is meant to aid Tanzania in alleviating the balance of payment shocks the country is facing due to the global pandemic. In October 2020,the African Development Fund (ADF) approved a $50.7 million loan to Tanzania to fund the country’s response to the global pandemic.

Impact on the oil and gas sector

So far, the coronavirus pandemic has not disrupted existing onshore gas production. This gas supplies the domestic market, and with the government setting its price, global market dynamics have limited influence. There are no apparent supply chain issues for these projects. However, the pandemic’s global economic impact could have significant repercussions on the prospects of new projects.

A review of production-sharing agreements (PSAs) is incomplete, and had stalled negotiations for the long-awaited liquefied natural gas (LNG) project. However, the government has indicated that negotiations may resume soon; the government is likely to then be in a more challenging negotiating position. With production unlikely to start until the late 2020s at the earliest, the viability of the project will be determined by long-term evolutions in the global gas market.

It is still too early to tell how the current price crash will affect the pace of the energy transition or the supply and demand for gas. However, the crash does mean that companies have less money to invest in new projects. Moreover, in September, Shell—a key player in the LNG project—announced a significant cost-cutting drive and a rationalization of its oil and gas projects in preparation for the energy transition. Previous analysis had already raised questions about the project’s profitability, and the crash is likely to make investments even more uncertain. Whether this changes the government’s approach in the negotiations, which NRGI considers over ambitious, remains to be seen.

The prospects for exploration and investment in other parts of Tanzanian waters have been poor for several years. There are currently only 10 active PSAs, down from 17 in 2015. There are several reasons for this, including depressed global LNG prices, concerns about the investment climate, a model PSA with significantly higher taxes than elsewhere in the region, and slow progress with the LNG project. The price crash is likely to reduce interest further. Tanzania plans to have a licensing round once a new model production-sharing agreement has been formulated following the outcome of the yet to be concluded PSA review process. 

Impact on the mining sector

The government did not impose any restrictions on the mining sector.Any impact on mining is therefore almost exclusively a result of global factors.

Tanzania’s four large-scale gold mines are still benefiting from the high gold price. According to the Bank of Tanzania’s September 2020 monthly economic review, the export value of gold increased by 42.9 percent year-on-year from August 2019 to August 2020. This increase is mostly resulting from an increase in gold prices due to gold’s safe-haven asset value. The resumption of concentrate exports in April 2020 should increase production at two of these mines.

The artisanal and small-scale mining sector (ASM) was hard hit at the peak of the pandemic in Tanzania. Findings from a recent scoping study carried out on some mining sites in northern Tanzania show that production slowed down in some mining sites; mineral prices dropped during the pandemic, with an average drop of 22 percent in gold prices per gram in May compared to prices before the outbreak of the coronavirus; and incomes fell in the mining communities. Interviews conducted as a follow-up to the study show that mineral prices—particularly gold prices—are on the rise again following the lifting of travel restrictions and the miners are positive that the sector will recover.

The coronavirus pandemic does not appear to be severely impacting the project pipeline, such as the Buckreef gold project and the Mahenge Liandu graphite project. In addition, Shanta Gold Ltd recently announced that it has started the construction of its Singida gold mining project. More recently, Tanzania’s mining minister has indicated that the government will issue a gold mining license for the Nyanza project to the Australian company OreCorp. Tanzania is also finalizing a permit for the first rare earths metal mine to Peak Resources, another Australian company. Indeed, the resumption of VAT refunds for mineral exports in June 2020, which followed a reversal in the government’s prohibition of international arbitration in January, should actually mean investment prospects have improved since the start of the year.

Impact on extractive sector revenues

Mining contributed 3.1 percent to government revenue in the 2017/2018 fiscal year.* The government recently announced that it expects revenues of TZS 600 billion from the mining sector in the 2020/2021 financial year. On 14 October, the government received its first dividend of USD 40 million from Twiga Minerals Corporation only one year after joint venture between the government of Tanzania and Barrick Gold Corporation was formed. The government of Tanzania has a 16 percent free-carried shareholding in the operating company, Twiga Minerals, that manages the Bulyanhulu, North Mara and Buzwagi gold mines. This is particularly important for Tanzania’s balance of payment and foreign exchange reserves, including gold, given that minerals comprised 41 percent of merchandise exports in 2018/19 and the other big foreign exchange earner, tourism has been severely impacted by the coronavirus pandemic. According to the Bank of Tanzania’s September monthly economic review, there was an 84 percent drop in travel receipts in August 2020 compared to August 2019.

The mineral-trading centers established in 2019 have helped almost double ASM revenues, but they remain relatively small. According to the minister for minerals, the government received TZS 22.5 billion in royalties from artisanal miners in 2019, a significant increase compared to the TZS 1.2 billion received in 2016, before the 2017 mining reforms were established. However, disruption to ASM activity puts a significant number of livelihoods at risk. A recent study of four Tanzanian regions with significant ASM activity suggests that ASM directly employs at least 75,000 people and possibly considerably more.

Existing gas projects do not generate significant government revenue (in 2016, only 0.3 percent). However, the LNG project would generate a lot more; NRGI’s latest estimates suggest it could contribute around 5 percent of government revenues at an LNG price of USD 8/MMBtu. However, these revenues are a long way off, regardless of the coronavirus pandemic. The government appears to have recognized this and is yet to start making public finance decisions in expectation of them.

Impact on natural resource governance

At the time of writing, there has been no specific impact of the coronavirus pandemic on the natural resource governance agenda in Tanzania. The context remains one where governance of the extractive sector is highly centralized, and there is limited space for civil society to engage officials and inform or influence decisions.

Looking forward

It is uncertain how government attempts to boost the economy following the pandemic will impact its approach to the mining sector. The government could realize the need to expand mining activity and continue revisiting some of the more problematic 2017 reforms.

The LNG project was not a top priority for President Magufuli during his first five-year term in office, and it is unlikely that it will be following his reelection. Given that the second term will be his last, and considering the current uncertainties surrounding the development of the LNG project, it is unlikely that the president will prioritize the development of the LNG project to drive his industrialization agenda. The administration will most likely prioritize the completion of the 2,115 MW Rufiji Hydro Power Project to meet the country’s growing energy needs.

*This figure was computed using the mining revenue data from the TEITI 2017/18 report and the government revenue data from www.nbs.go.tz/nbs/takwimu/references/Tanzania_in_Figures_2019.pdf

Sophia Rwegellera is the Africa senior officer at the Natural Resource Governance Institute, and is based in Tanzania.