Thursday, October 3, 2013

WHY POVERTY REIGNS AMID WEALTH?



A senior lecturer with the University of Dar es Salaam recently attempted to respond to a riddle which has been disturbing many including national leaders.  

President Jakaya Kikwete and Prime Minister Mizengo Pinda were separately reported to be surprised by Tanzania’s failure to register tangible growth.
With all necessary resources at its disposal, the country’s economy does not seem to grow at the pace required for eradicating abject poverty, they wondered.
Professor Humphrey Moshi, senior lecturer with the University of Dar es Salaam (UDSM), attributes the poverty haunting Tanzania to, among others, resource curse and  Dutch disease.
Poverty has been afflicting Tanzanians amidst minerals, natural gas, vast tracts of arable land, several water sources, forests and wild animals found in abundance in their backyard.
While all local and international roads are heading for Lindi and Mtwara where natural gas has been discovered lately, residents of the southern regions are worried over distribution of benefits to be accrued from the godsend.
Their anxiety was written all over their faces since last year when they opted for taking to the streets in demand of handsome concessions.
However, the government has all along maintained that receipts accrued from locally extracted natural resources are shared countrywide.
The minister for Energy and Minerals, Professor Sospeter Muhongo, argues saying the government is in control of the situation and that it is determined to benefit from oil and gas resources.
“We know where we are going, we need our country to adopt gas economy. That’s why we started with Songosongo project and now the Mtwara one,” says Professor Muhongo.
“In order the country to develop, first it might support science and technology. India, China and Malaysia have passed across using this approach,” he adds.
The ongoing debate between the southerners and the government recently brought together various stakeholders in Dar es Salaam to discuss it under the auspices of the Economic and Social Research Foundation (ESRF).


Responding to the irony of Tanzania embracing poverty and natural resource wealth at the same time, Prof Moshi said: “First, it is due to the ‘resource curse’, a term used for describing a failure to benefit from natural wealth among resource-rich countries,” he says, adding:
“Experience shows countries with large natural resource endowment, including oil and gas, often perform poorly in socio-economic growth as well as in good governance compared to their counterparts with meagre resources.”
Prof Moshi says lack of natural resources has never proven to inhibit socio-economic growth. “The Asian Tigers - Hong Kong, Korea, Singapore and Taiwan - serve as a testimony to this empirical evidence,” he says.
The economist says uniqueness of natural resources in question is the second reason in addition to the resource curse.
Natural resources have features which distinguish them from other types of wealth, he says, explaining: “First feature, they don’t need to be produced, but rather to be extracted. Since they are not a result of production, they don’t create many jobs,” he explains. “Second feature, many natural resources, oil and gas included, are nonrenewable. From the economic perspective, these are less like a source of income and more like an asset,” he adds.
Unequal expertise between the government of a resources-rich country and the multinational corporations involved, according to him, also explains the poverty riddle.
“Governments face considerable challenges in dealing with shrewd multinationals which boast having immense expertise in the sector and an extraordinary resource on which to draw,” he says.
Oil and gas exploration are both capital and increasingly technological intensive. Their extraction requires genuine cooperation between a government and experienced international private sector actors.
“In many cases, corporations know more about the value of the goods being sold than the government, bringing about an unusual situation altogether,” he says.
New challenges arise with regard to non-extractive sectors of a country’s economy immediately after contracts are signed and financial flows are realised, he says. “Following the discovery of natural gas in the North Sea in 1970’s, the Dutch manufacturing sector suddenly started performing poorly, resulting in the ‘Dutch disease’ term.
He elaborates that a sudden rise in the value of natural resource exports produces an appreciation in the exchange rate.
Due to the spending effect, the export of non-natural resource commodities under such circumstances is almost impossible. Given the prices of both oil and gas being volatile at the global markets, Prof Moshi warns the government over relying heavily on the income accrued from these commodities.

 The oil and gas receipts should be viewed as consumption of capital rather than income, he suggests, stressing that natural wealth can exacerbate economic effects.

THE CITIZEN

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