Stretching Tanzania’s Industrial Dimensions

If actions speak louder than words, then Tanzania is heading towards an industrial expansion. According to Razia Khan, Standard Chartered Bank’s regional head of research in Africa, Tanzania is currently the second largest economy in the region and ninth in the continent with a GDP measuring $23bn, and if the present GDP growth remains the same, Tanzania could well take over Kenya as the region’s largest economy by 2030.

From its long association with the continent, Standard Chartered Bank (SCB) can be said to be a sure bet on African affairs. And the bank thinks that if Tanzania’s current GDP growth of $23bn remains the same for the next two decades, it could become East Africa’s largest economy by 2030, pushing Kenya into second place.

Far from being unrealistic, SCB’s forecast is a plausible possibility. At Tanzania’s current growth rate of 7%, SCB also foresees the economy rising to the sixth-largest in Africa by 2030 (from its current ninth place), with an estimated GDP growth of $230bn by that time.

But overtaking Kenya will not be easy. For Tanzania to do so, it has to focus on three main sectors: agriculture, mining and energy. Energy supply and industrial activities are always interlinked, as continuous power is crucial for operations and manufacturing processes. Tanzania has suffered frequent power cuts and load- shedding for a good part of a decade. And the problem still continues.

As a result, the cost of doing business has increased. Now that the rainy season is back, the government is pursuing a course of action in the short term to ameliorate the situation, especially since energy demand is forecast to increase by a staggering 58% by as early as 2015.

In the long run, Tanzania will be working with neighbouring countries on the “Kenya-Tanzania-Zambia Interconnection” – a closed-circuit system in which power moves from a surplus to a deficit area through high-voltage cross-border transmission lines. The project
will consist of a 400KV line that will be one of the longest when complete in 2015.

In the short term, the government will attempt to exploit Songo Songo Island’s natural gas reserves. Although the field is yet to be fully explored, independent engineers estimate that it could contain as much as 830 billion cubic feet of natural gas. Behind the project is Canada’s Orca Exploration Group, which owns the license to develop the field. Orca currently supplies Tanzania’s grid with 57 million cubic feet of gas per day, but the restrictive pipeline capacity is hindering any additional output to the country.

To resolve these issues, the government signed a loan agreement with China to finance the construction of a 532km gas pipeline from Mnazi Bay in Mtwara, Songo Songo, to the capital Dar es Salaam. The new pipeline will have a capacity of 784 million cubic feet of gas per day, to be used to generate 3,900MW of electricity. Two new gas processing plants will also be financed by the loan. Construction of the pipeline was due to start in November and the whole project is expected to be ready by March 2013.

A series of significant deals has recently been concluded between local and international firms. Brazil’s Petrobas entered into a Farm-Out agreement with Shell Deepwater Tanzania, in which the latter acquired 50% of its interest in offshore blocks in Tanzania’s Indian Ocean. On the other hand, Bounty Oil & Gas signed a new Production Sharing Agreement (PSA) with the government last month, granting the company and its partners the right to explore oil and gas over 1,690 sq km in the Nyuni area off the Indian Ocean coast.

The government also signed a PSA with Heritage Oil to explore oil and gas in Lake Rukwa in the south, where the company will invest $66.5m. Both PSAs with Bounty and Heritage will cover 11 years each, divided into three sub-periods.

This brings the number of exploration companies on the ground to 17; the highest since exploration of oil and gas started in the country some years ago. The government is in talks for six new PSAs with international firms to operate in prime places, and if the negotiations are successfully concluded, the PSAs would cover Kyela, Ruhuhu, Mikumi, and Pangani.

Meanwhile, the $340m Rusumo Waterfalls project is expected to take off next year. Funded by the central banks of Tanzania, Rwanda and Burundi, the electricity project will supply power to the three countries.

Renewable energy will also be part of Tanzania’s energy mix. A solar energy project was commissioned in Tanzania by the European Union, in which Camco International will install small-scale solar systems across 15,000 homes in the Lake Victoria region.

This is part of the EU’s plans to construct five renewable energy projects in Tanzania, under a $10.7m scheme that will connect thousands of rural sites to the national grid using hydropower, solar energy, and biogas. In addition, the grant entails building a new hydropower plant at Msolwa, while the existing Mawengi hydropower plant will be upgraded.

Agriculture

Agriculture forms 26% of Tanzania’s economy, and nearly 70% of the population depends on it for a living. Yet arable land is becoming more expensive and foreign governments – such as Saudi Arabia’s – are increasingly acquiring plots throughout Africa to produce crops for their own economies that lack agricultural land.

Last month, Tanzania’s president, Jakaya Kikwete, led the launch ceremony of an agricultural investment project under the country’s five-year development. The project aims at attracting investors into agriculture and ensuring food security. The Tanzania Investment Centre (TIC) has been charged with leading the effort of attracting both domestic and foreign investors into the agricultural project.

Before the project was launched, several international firms were contributing to the growth of agriculture, such as the UK’s Obtela Resources. In October, the firm’s agricultural business arm, Montara Continental, acquired a 70% stake in Montara Land Company, which operates a 200 sq km concession in Songea District in Ruvuma. Montara Continental intends to plant groundnuts, sunflower, sesame, soya, and seed maize, and the bulk of the crop produced will be sold back to the seed suppliers in the form of an off-take agreement.

City Energy & Infrastructure, based in Dubai, is also investing in this sector. The company recently revealed its involvement in the development of a sugar plantation and sugar processing plant across an area of 100,000 hectares in Kigoma.

City Energy will also build a thermal power plant with a capacity of between 150-200MW that will be linked to the national grid to power Kiguma. Its third project will see the construction of East Africa’s first copper smelter, with a capacity of 300,000 tonnes of blister copper per year, to be mined from Rukuwa, north of Zambia’s copper belt. Mine construction is expected to start within the next 30 months.