Being a net oil importer, Tanzania has already gained from the crisis in many ways, including cheaper gasoline for motorists. At the macroeconomic level, gains made include some balancing of the country’s international commercial and financial transactions books. Latest Bank of Tanzania (BoT) figures show that the country’s overall balance of payments narrowed to a deficit of US$101.3 million in the year ending November 2015 compared with a deficit of US$251.4 million in the corresponding period in 2014.
Its latest review of the economy also says the current account, which is Tanzania’s non-capital transactions with the rest of the world, also made tremendous gains during the period. “The current account deficit narrowed by 27 per cent to US$3,542.9 million during the year ending November 2015 relative to the corresponding period in 2014.
This follows an improvement in exports, combined with a decline in imports of goods and services,” BoT notes in the December monthly economic review (MER).
However, as the country expectantly looks forwards to accrue more benefits as the bumpy oil ride continues, analysts are cautioning of overexcitement as the economy and the whole country at large will suffer in some ways from the unprecedented prices crunch in recent times.
“Very low oil prices will have both positive and negative effects for Tanzania,” Manzi Rwegasira, head of strategy at National Microfinance Bank (NMB), told Smart Money noting that the oil prices crunch would greatly boost the shilling’s fortunes.
To many analysts, the biggest loser would be the gas economy on which the government pegs hopes to catapult the economy to middle income status by 2025.
While there are no signs of relief for oil prices, the experts argue that Tanzania’s gas reserves can only be economically viable and make commercial sense when a barrel of crude fetches not less thanUS$80. Economist Honest Ngowi of Mzumbe University said the oil prices crisis also dents Tanzania’s expectations to discover oil.
According to him, the continuous price declines of the liquid gold may scare and push away prospective and actual investors. “It is an opportunity for Tanzania to economize on the excessive consumption of imported goods and use the savings to invest in the production of raw materials and manufacturing of goods for local consumption and export,” gas consultant Dr Antipas Massawe said.
“But exploration for oil and gas in Tanzania would slow as slump in oil prices makes the mobilization of exploration funding difficult,” he told Smart Money. Prof Ngowi said things would have been much better especially for consumers had it not been for the numerous taxes and other charges levied on oil by the government.
According to him, the unprecedented slump was an opportunity to ease the cost of living and doing business in the country. The don, who teaches at Mzumbe University’s Business School in Dar es Salaam, says it will take time for many benefits to be felt and seen in economies like Tanzania’s that are ridden with numerous structural shortcomings. “Potentially, the decline in oil prices may be a good thing for Tanzania.
Oil is one of the factors of production in many cases. It fuels industries, institutions as well as big and small firms, even homes,” he told Smart Money. “With the other factors being constant, the decline in oil prices should lead to reduced price or prevention of price hikes. It may therefore contribute in reducing inflation. However, the price of oil in Tanzania is inflated by a number of taxes and fees to the extent that the decline in global oil prices may not necessarily be 100 per cent reflected in the country,” he added.
On Thursday last week, the Energy and Water Utilities Regulatory Authority (EWURA) lowered the maximum retail prices of petrol and diesel but left kerosene prices unchanged. Fuel prices are the second-biggest driver of inflation in Tanzania after food. The petrol price was lowered by 55/- per litre in Dar es Salaam to 1,842/-, while the price of diesel was slashed by 147/- a litre to 1,600/-.
The price of a litre of kerosene in the commercial capital remained the same at 1,699/-. EWURA said kerosene prices remained unchanged because there were no imports of the fuel in January. The sectoral regulator said the new prices reflected a decrease in prices of petroleum products in the world market as well as a decrease in freight and premium charges.
From 2010 until mid-2014, world oil prices had been fairly stable, at around US$110 a barrel. But since July 2014, the prices have fallen sharply leading to significant revenue shortfalls in many energy exporting countries, while consumers have been paying less to heat their homes or drive their cars in importing countries.
By May last year, Brent crude oil had dipped to US$50 a barrel for the first time since May 2009 and at one point last month it even went down to below US$30 a barrel. The prices, which have fallen by 75 per cent since mid-2014 due to oversupply and sluggish demand, fell from 1.6 per cent to US$34.46 on Thursday last week. While crude rallied 14 per cent in the final two weeks of January, it’s still down about 16 per cent this year. The prices, which slid 35 per cent in 2015, dropped two per cent last week.
On Friday, West Texas Intermediate for March delivery decreased 83 cents to close at US$30.89 a barrel on the New York Mercantile Exchange. Brent for April settlement decreased 40 cents to US$34.06 a barrel on the London-based ICE Futures Europe exchange. The World Bank says that oil importing countries, where three quarters of the seven billion global population live on less than US$1.25 a day, will benefit the most from the crunch.
This will be in terms of strong growth, reduced inflation and improved fiscal balances, which can provide the space for smart policy changes that benefit the poor, it adds. “We expect to see economic growth in oil importing countries remain solid, driven by investment in infrastructure and strong consumption,” the director of the African Department of the International Monetary Fund (IMF), Antoinette Sayeh, said recently.
The Bretton Woods institutions say the current oil crisis means trimming of import bills for countries like Tanzania, greater fiscal space for aid dependent economies and ease in their current account deficits. The Overseas Development Institute (ODI), which is the UK's leading independent think tank on international development and humanitarian issues, argues that if governments pursue smart policies, they can translate the low prices opportunity into sustained benefits to their economies.
ODI says in a report that inflation fell by two per cent in Tanzania, South Africa and Kenya between June 2014 and February 2015. If inflation remains low, it argues, real disposable incomes will rise correspondingly, which could increase consumer spending by around US$10 billion across sub-Saharan Africa.
“The sub-Saharan African countries that rely on importing oil will be the biggest winners. We estimate that a 30 per cent oil price drop would reduce imports by around US$15 billion, with the major gainers including South Africa, Tanzania, Kenya and Ethiopia,” the ODI report reads in part. The British development think tank further notes in the report that the value of Tanzania’s oil imports dropped by 20 per cent (US$800 million, or 2.5 per cent of GDP) over the 12 months to January 2015.
John Mashaka, who is a Tanzanian Wall Street-based financial analyst, says the savings realized from low oil prices should be spent on critical projects for the country’s economic growth such as alternative sources of energy, education, healthcare or geographic areas where infrastructure has been neglected. Rwegasira said that one of the biggest components of Tanzania’s imports was fuel, which accounts for about 30 per cent of the import bill. He said the value of what it imports exceeds exports hence the country has a constant trade deficit.
“Low oil prices means we pay less for the oil so our import bill is lower and our trade deficit reduces,” he told Smart Money. “Lower trade deficit should support the Tanzanian shilling,” he added, “With a smaller import bill because of lower oil prices Tanzania will have to sell less shillings to pay for the imported goods and services.
This means we will have less demand for dollars which should give a positive boost to the Tanzanian shilling,” Manzi explained. The latest MER shows that the country’s import bill declined by three per cent to US$12.9 billion during the year ending last November compared to the corresponding period in 2014. Oil imports during the period dropped by 22 per cent to US$3.67 billion from US$2.86 billion.
The fuel imports decreased from US$211.8 million in January last year to US$163.6 million in November. During the two months in 2014, Tanzania spent US$343.6 million and US$225.3 million on oil imports. “The oil import bill, which constitutes the largest share in intermediate goods, decreased due to falling prices in the world market coupled with decline in import volume,” BoT adds noting that the value of exports of goods and services increased to U$$9,566.6 million in the year ending November 2015 from US$ 8,579.0 million during the period.
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