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Natural Resource Revenue in Tanzania – Justin Sandefur
00:14:33
Tanzania made a big discovery in 2012 – a deposit of offshore natural gas roughly equal to the per capita annual income of the average Tanzanian. Precedent would indicate that the country now faces a "resource curse," the paradox of having...
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Foreign.
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Hello, I'm Rajesh Merchandani, and thanks for joining me for the CGD podcast. On this edition, we're asking what should developing countries do with potentially huge revenues from natural resources? For example, in Africa, there are proven reserves of trillions of cubic feet of natural gas that could represent future altering revenue streams for some countries. But how best to allocate them? CGD research fellow Justin Sandifer is leading a project in Tanzania that asks ordinary people what they think, and he's here to talk about that work. Justin, welcome.
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Thank you very much.
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Now, let's start with this question of what to do with natural resource revenues. Why is it even relevant in Tanzania?
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So Tanzania made a big discovery in 2012. Tanzania discovered natural gas offshore. It's always had small amounts of natural gas used for energy, but this was the big find. This is an amount of natural gas which, with mildly optimistic forecasts, would be almost equivalent to the median household income of typical Tanzanian in terms of per capita annual flows. So a big amount of money coming in if everything goes well.
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So just break that down so we can understand that better in terms of the amount of money that means for the median household Tanzanians earn every year.
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The median household in Tanzania, Tanzania consumes about $120, $130 per capita. That's U.S. dollars. And you're talking the Tanzanian government spends about that much in terms of public expenditure as well. And optimistically, you could be talking about similar amounts of money coming from natural gas revenues over the course of if everything goes well the next several years in Tanzania.
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So the an amount of money coming from natural gas revenues that is equal or equivalent to the entire national income per year.
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Well, of the median person, there are wealthier people who earn much more. So this is definitely less than gdp, nowhere near it. But if you were to divide this money up, if everything goes well, and there's a lot of ifs there, if everything goes well and Tanzania starts producing the amount of natural gas that it has and they sell it at, you know, optimistic prices, the amount of revenue they'd be receiving is about equivalent to what a typical Tanzanian household currently has in terms of annual income.
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Now, they haven't started extracting this natural gas yet, but these are questions that the Tanzanian government, Tanzanians are asking because these are really important amounts of money that could be coming to the country. So what are the options that are available to the government?
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So there's, I think the default option is that these monies go into central government coffers. This expands the Tanzanian government budget and government does the kinds of things that governments do. Builds infrastructure, pays for social services, civil servant wages and so on. The big question marks are around kind of savings and smoothing this revenue out over time. Natural gas is a depletable resource. It's not going to last forever. The forecasts are something like 20 to 30 years of extraction and. And then it's gone. So the typical advice from economists is that you convert this kind of subsoil asset into a permanent above ground asset. You accumulate capital stock instead of just pure consumption. The question is how you save, where you save and what you invest in.
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So do you spend it on infrastructure now? Do you give it to people as a dividend like they do in Alaska? Or do you do what Norway has done and save tons of it and create a huge sovereign wealth fund, that kind of thing? Those kind of questions?
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Yeah. So there's two dimensions. Everybody who thought about natural resources in the developing world has thought about the problem of the natural resource curse. There's this very well known pattern that countries who make these big discoveries don't perform as well economically as we might hope with these big influx of resources. And we kind of can divide that up into two sides. There's an economic component to that well known kind of literature and macroeconomics about Dutch disease and exchange rate appreciation and makes your economy less competitive. And from a technocratic point of view, we kind of know how to deal with it. Not to say that it's easy, but there are known solutions to Dutch disease and exchange rate appreciation. But then there's a kind of a political economy side to it and a governance concern, corruption. That this breaks the link of accountability between government needing to get revenues from citizens as taxpayers to governments now having these sovereign rents that they can do with as they please in the worst case scenario. And we're really focused here on that political economy aspect of these natural resource flows. What's it going to do to accountability within this fairly fragile democracy in Tanzania?
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And on that point, how unusual is it that ordinary people actually get asked their opinion on an issue as big as this?
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It's quite unusual. And in fact, when we talk, even when we talk to colleagues, you know, fellow economists about this, the first thing people typically respond as well. Managing a big natural resource find is complex stuff. I'm not really sure that ordinary Tanzanian should be weighing in on this. So it's not taken for granted that popular input is a good thing on an issue like this.
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But it's also not done very often, is it?
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And it's not done very often.
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So your project seeks to redress that balance and address the crucial issue with some 2,000 Tanzanians, is that right?
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So what we're doing is fairly straightforward. It's based around public opinion polling and we're kind of using a model which has been developed by a colleague who's a professor at Stanford, Jim Fishkin in the political science department at Stanford, called deliberative polling. So the trade off you face on an issue like this, which is that you'd like to know what representative public opinion is on this issue. What do Tanzanians want, What do they think? At the same time, you've got a citizenry, an electorate which is not well informed, which is not very well educated, which doesn't have a lot of media exposure. So the typical citizen knows almost nothing about this and doesn't have any opinion about whether Tanzania should have a sovereign wealth fund, for instance. So how do you square that circle? How do you balance those trade offs? And the proposal here is you do a nationally representative poll, but then you bring your poll respondents together, you provide them with information, both in print and because a lot of people are illiterate, in the form of videos. You bring them to group sessions where you have focus group style conversations about the policy options. You have question and answer sessions with experts, you have debates between people who are informed about the topic. People spend a couple of days together really learning this issue. At the end of that, you've got this nationally representative sample of ordinary Tanzanians who've also now been exposed and educated on the issues. And you poll them about what they think the government should do with these resources.
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That's the kind of project that would be difficult to pull off anywhere. But let's just talk through the logistics of making this happen in Tanzania. So your original sample, your first survey.
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Is 2000, 2000 Tanzanians. So 20 districts all over. So start from the population sampling frame. Pick 20 districts at random. Pick villages and urban and neighborhoods at random, Pick households at random. So this is really a truly representative cross section of the Tanzanian population, meaning that most people will be living under a dollar a day, you know, the absolute poverty line in the world.
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And then you're going to ask them these questions. Well, in fact, you have been asking them these questions. It's very comprehensive surveys. I've got some of the questions printed off here, which is runs to what, 10 pages, something like that?
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Yeah, it's a lengthy kind of hour longish survey which with some socioeconomic Kind of demographic stuff. And then a whole bunch of questions about your policy preferences about how much should the government be saving, how much should it be spending on education, on health and so on, and should the central government be running this? Should local government be involved? And what can we do in terms of transparency and oversight to make sure these resources are used? Well, yeah.
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So here are a few of the questions. What, if anything, have you heard about Tanzania's recent natural gas discoveries? There are other questions. Some countries, such as Norway, place strict limits on the amount of money that can be spent each year from oil and gas revenues. Other countries, such as Ghana, have very loose limits. What do you think is the right solution for Tanzania? And then it goes on next page. Some people think the Tanzanian should pay the full price for energy so that the earnings from selling natural gas can be used for roads, schools, clinics and electricity lines. What do you think? And then it asks people, you know, what should the money be spent on? Spend money on building things for people like roads. Spend money on public services such as healthcare and education. Give money directly, directly to households, et cetera, et cetera, et cetera. Pretty comprehensive stuff. And then you ask these questions to 2000 Tanzanians and then you're going to bus some of them to the capital, Dar es Salaam, is that right?
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So this is the ambitious piece. We wanted to have this national conversation with a representative sample of Tanzanians. And to do that means getting people in one place. And so we will have 400 people out of our sample randomly selected from this, our baseline survey, who will come together to Dar es Salaam to spend two days talking about these issues. And that is, you know, you've got a lot of rural farmers who've probably never been possibly outside of their region. Most of them probably certainly never been to Dar es Salaam. This is going to be a big trip for people. This is going to be kind of, I think, a new experience for a lot of our sample and a big logistical headache for us. But hopefully we think it's worth it to get a representative sample.
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It could be this sort of fantastic, colorful circus almost.
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I'm hoping for not too much of a circus, but fingers crossed.
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So they're going to be at this two day event and they're going to be hearing from experts and politicians. This is what we could do. They're going to be seeing videos, you're going to poll them again at the end of that. What kind of people are they going to be exposed to at that event?
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So some of the people will be fairly technocratic. Researchers, academics, people from think tanks in Dar es Salaam who know the issues, have been studying the natural gas find others will be more outspoken politicians, both from the government, from the ruling party side and from opposition members of parliament who have, you know, one of the divides among, I think the leading politicians, obviously members of the ruling party and the government are, have more faith in the ruling party and the government to spend the money well through the normal channels. And there are some voices in opposition who really support pushing these resources out more directly to local government or even directly into the hands of citizens and distributing the resources directly to people, bypassing government channels as much as possible. So we hope people are going to be exposed a little bit to the flavor of that discussion.
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And given that it's a presidential election year in Tanzania, how much attention do you think both political sides are going to be paying to this? Because it's not something that happens very often in Tanzania.
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What to do with the natural gas revenues has not yet emerged, to my knowledge, as a central campaign issue. It's early days for the campaign.
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But what about the idea of listening to people?
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As in many low income countries, there's just not a lot of public opinion polling out there. Tanzania has limited amounts of, you know, whereas you can go on CNN and look at weekly poll numbers of Hillary Clinton against any hypothetical opponent, hypothetical Hillary, hypothetical Hillary against any hypothetical Republican opponent, you really can't get that in Tanzania. So this will be kind of a rare injection of, we hope, high quality public opinion data into the kind of policy conversation in Dar es Salaam.
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So with your wonk hat on, is that what you're hoping to get out of this?
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We hope to be able to see how politicians and kind of the elite conversation in Dar es Salaam as a whole responds to people's informally to assess to the extent to which politicians update their policy views in response to this injection of information.
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And then in terms of the wider issues for Tanzania, what do you think this project will achieve?
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Well, a couple of things. I mean, one concern you said the typical response you get from economists is like, well, you don't want normal people weighing in on how to use natural resources. Populism is our biggest fear here, that people are going to want to squander the money, that regions or ethnic groups are going to compete over the money. So you want to keep this, you want to avoid populism. Part of what we hope to do by having this really informed, educated but representative conversation is to kind of show politicians how the Tanzanian electorate is able, we hope and hypothesize, to have a reasoned debate over the substantive issues here and to weigh the pros and cons of savings, to weigh the pros and cons of offshore sovereign wealth funds, of investment in capital and not short term spending, and to really raise the level of the conversation about this issue in.
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Order to raise the effectiveness of this revenue when it actually starts to come.
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In the long term, to hopefully affect the prudence with which the resources are managed in the long term.
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Okay, Justin, it sounds like an absolutely fascinating project. It could be this crazy circus as we've described, but in some ways I sort of hope it is.
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We'll know by the end of April.
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Okay. Well, we look forward to your results and we hope you'll very, very much hope you'll come back and talk to us about what it was like if you make it out in one piece.
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Thanks a lot.
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Okay, that was Justin Sandifer, research fellow here at cgd. You can read about this upcoming project on our website, www.cgdev.org. and as ever, thank you very much for joining me, Rajesh Merchandani, for this edition of of the podcast from cgd, the Centre for Global Development.