AVOIDING THE NATURAL RESOURCE CURSE

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AVOIDING THE NATURAL RESOURCE CURSE

THE CASE OF THE TANZANIAN NATURAL GAS EXPLOITATION

Master Thesis – Faculty of Economics and Business – University of Groningen MSc IB&M (International Business & Management)

MSc BA SIM (Strategy & Innovation Management)

Supervisor: B.J.W. Pennink Co-assessor: P.M.M. de Faria Vera Bekkers Almastraat 8B, 9716 CN Groningen v.bekkers@student.rug.nl Student number: S2107368 Word count: 13742 Date: 18th_{of January 2016} ABSTRACT

This research aimed to uncover factors that can help developing countries with significant amounts of natural resources in avoiding the so-called ‘natural resource curse’. Previous studies show mixed results; some countries show a surge in economic growth, whereas others end up with conflicts and environmental degradation, i.e. the natural resource curse. Posing local economic development and innovation as sources of national economic growth (the antithesis of the natural resource curse), this case study involved semi-structured interviews with various local stakeholders on the topic of recent natural gas findings in Tanzania. From the analysis of the interview data, a number of factors were uncovered that may lead to positive outcomes of resource exploitation. These factors include (1) the government, (2) knowledge and education, (3) local participation, (4) revenues, (5) transparency, (6) legal issues, and (7) finance and capital. These are important issues to be taken into account for the successful exploitation of natural resource in developing countries, assuring inclusive economic growth and avoiding the natural resource curse. Then, three scenarios were developed that give deeper insight into possible futures for the natural resource exploitation, using the previously identified factors. Lastly, a multi-criteria analysis (MCA) showed that the importance ranking of these factors is stable across a measure of needed change and a measure of uncertainty in the future. These seven factors then, can be seen as crucial for a successful exploitation. Combining the qualitative scenario descriptions with a more quantitative MCA approach strengthens the results of this research. Altogether, this study adds to the academic field of international business and strategic innovation management by introducing new factors to the study of the natural resource curse and economic development, which may be tested further for their effects on the impact of natural resource findings in developing countries.

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Some country’s economies seem to grow quickly after the discovery of vast amounts of natural resources, whereas others counterintuitively fall behind in their development. The so-called ‘natural resource curse’ has been explained by Frankel (2010, pp. 1) as “a failure of countries with abundant natural resources to grow more rapidly than those countries without”. He argues that many countries still have low GDP per capita and a low quality of life, even though the area is rich in oil, minerals or other natural resources (e.g. Nigeria, Sudan, and Bolivia). At the same time, countries without significant natural resources (e.g. Japan, Hong Kong, Singapore) have achieved considerable improvements in the quality of life, and have risen to higher economic standards (Frankel, 2010). Part of this resource curse is the so-called ‘Dutch Disease’ wherein large export revenues from natural resources cause real exchange rates to appreciate, thereby increasing prices of export goods (Bruno & Sachs, 1982; Corden, 1984). The name of this ‘disease’ has arisen from the fact that the Netherlands have experienced this effect when they first started gas exploitation around the 1960s.

The existence of this ‘curse’ has been tested extensively over time through econometric calculations, and when Sachs & Warner (2001) summarized and analyzed the previous research, their findings confirmed that countries with an abundance of natural resources on average tend to grow slower than countries that are resource-poor. Several studies have found that oil abundance is negatively related to economic growth (e.g. Ross, 2001; Smith, 2004). On the other hand, there are also studies that report different results. For example, both Botswana and Congo are naturally rich in diamonds, however the economic and social conditions in both countries are far from similar in terms of political stability, democracy, and GDP growth (Englebert, 2000; Iimi, 2006). Moreover, Norway (oil) and Chile (mining) have shown that resource-rich countries can indeed benefit economically from exploitation (Røed Larsen, 2003; Wright & Czelusta, 2003). Alexeev & Conrad (2009) have also found a positive influence of natural resource wealth on economic growth. Adding even more to the confusion in the academic field, there are several statistical studies that show no significant effects of a natural resource curse at all (e.g. Herb, 2005; Lederman & Maloney, 2008).

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In short, there are conflicting findings in theory about a real-life problem that is still affecting many people today. There is thus a theoretical as well as practical urgency to study the topic, leading to the central question that this thesis has aimed to provide a first answer to: how can developing countries avoid a potential natural resource curse? More specifically, which factors can be identified, that are crucial in enabling the country to grow economically and let the citizens benefit from the exploitation of its natural resources?

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6 CONTEXT

Tanzanian Natural Gas Discoveries

The current case study is based on recent natural gas discoveries in Tanzania. Over the past few years, there have been several findings in the southern part of Tanzania, deep in the sea (also called offshore gas), with the expectation of more discoveries soon (Poncian, 2014). Specifically, the reserves offshore are of such considerable size (estimations are around 55 trillion cubic feet, and expected to rise further), that if exploited, could make Tanzania one of the richest countries in terms of gas reserves worldwide (Statoil, 2015). Smaller discoveries of on-land gas have been made several years ago, and some gas has been extracted from the ground in the Mtwara and Lindi regions, and transported to Dar Es Salaam for the generation of electricity for the country-wide grid. This situation in Tanzania is particularly interesting and relevant to investigate, because the country is now at the point where major decisions need to be taken with regard to the second exploitation phase of the offshore gas. Currently, multinational companies (MNCs) such as Shell, BP and Exxon are lined up to start the first exploration phase of the potential gas fields in the deep sea, and some have started during last year. Risk assessment by Ernst & Young in 2012 shows that there are three areas in which a high risk of doing business is perceived; legislative, taxation, and operations. Although the overall risk assessment shows that Tanzania is relatively stable compared to other African countries, these areas are cause of concern for MNCs looking to invest in the oil and gas sector.

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& gas companies, and also lowers the legislative risks for multinational companies. However, the new laws have raised some questions as the timing of the enactment in August 2015 was very close to the national elections that took place in October 2015. Moreover, the new legislations have not been made public to date, which has given rise to some suspicion with regard to the specific content of those new regulations.

The elections were especially significant this time, because it was the first time that the opposition parties formed a coalition to go up against the ruling party (CCM), which has been in power for the last fifty-four years. As the country is currently expecting a surge of development through the natural gas exploitation, this further increased the weight that was put on the elections. Election results were annulled in Zanzibar due to irregularities including even physical fights, however in the mainland of Tanzania, John Magufuli from CCM received 58% of the votes and declared the elections to be a win (BBC News, October 2015). A re-election is planned in Zanzibar, although a date has not yet been set, the main issue being the semi-autonomy that the island currently has; opposition parties want to regain full independence whereas CCM proposes maintaining the status-quo. The new president, Magufuli, has promised to end power shortages and exploit Tanzania’s natural gas discoveries for the benefit of the nation (BBC News, November 2015). He is one of the few politicians in Tanzania that has not been involved in corruption scandals and is nicknamed ‘the bulldozer’ for supervising a huge project of building roads across the country. A long list of challenges awaits the new government over the next few years, if they are to reach the goal of making Tanzania a middle-income country by the year of 2020.

Effects of Natural Gas in Tanzania

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these revenues, the government can assess which particular issues or projects in the country have priority and those projects can receive funding out of the tax revenues. Frequently debated in literature on developing countries is the absence of sufficient education and a stable institutional environment (Mehlum, Moene & Torvik, 2006). The tax revenues collected by the government could be used to improve this.

Exploitation Process

From a technical point of view, there is an important distinction between on-land gas findings and deep sea natural gas, as indicated in one of the preliminary expert interviews that took place in May 2015. On-land gas is relatively much easier to extract from the ground and can usually be transported via pipelines (much like we do across Europe, and the recently finished pipeline from Mtwara to Dar Es Salaam). However, with deep sea natural gas, there are two distinct options for the extraction, refinement and transportation of the gas (Demierre, Bazilian, Carbajal, Sherpa & Modi, 2014). Firstly, the natural gas can be extracted and refined so that it can be transported through pipelines for the domestic market. This option would need a lower up-front investment in terms of refinement equipment, but on the other hand, it would need substantial infrastructural investments on the mainland of Tanzania in order to actually get the natural gas to factories and households. Secondly, it is possible that after refinement, the gas will be transformed into LNG (liquefied natural gas), which will require a full LNG-plant of several so-called ‘trains’ to be built and therefore higher up-front investments. However, the liquefied gas can then subsequently be transported in large ships and sold on the existing international market, for example in India or other Asian countries that are relatively close to Tanzania and have an existing and growing demand (Demierre et al, 2014). Long-distance transportation of gas is viable only for LNG because the volume is 600 times smaller than ‘normal’ natural gas (Thomas & Dawe, 2003).

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Academic Relevance

Over the past few years, an increasing amount of attention in the academic field has been paid to economic and social developments in various African countries. Several studies have been conducted, focusing on the challenges in decision making (e.g. Ledesma, 2013), regulation and policy (Kironde, 2006), training and education (Howe, 2001) and potential conflicts of interest (Ndimbwa, 2013) that the governments of developing countries face. The discovery of natural gas in Tanzania may increase the amount of conflict and the need for more regulations, training, and better education. However, it can also prove to be their best chance at sustainable and significant economic development in the near future.

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10 LITERATURE REVIEW

Local Economic Development and National Innovation Systems

In the introduction, the natural resource curse was conceptualized as a ‘lack of economic growth in resource abundant countries, relative to other countries’ (Frankel, 2010). The opposite of a natural resource curse, then, is relatively high economic growth compared to other economies. There are several ways to stimulate this country-level economic growth, such as local economic development (LED) and innovation (Helmsing, 2001; Chen & Puttitanun, 2005). Helmsing (2003) has investigated the changing context of local economic development in Africa, which is mainly due to two general factors; liberalization and technological advances (i.e. innovation) in the countries. The author argues that local action as well as the involvement of the government in building institutions is an important factor in determining the economic performance of a country (Helmsing, 2001). LED can be defined as: “a process in which partnerships between local governments, community and civic groups and the private sector are established to manage existing resources to create jobs and stimulate the economy of a well-defined area” (Helmsing, 2003 pp. 69). This local economic development involving the three aforementioned parties can then lead to the strengthening of the whole national economy.

The greatest strength of LED lies in linking economic activities to the geographical location, thus creating sustainable employment in local enterprises (Rodriguez-Pose, 2001; 2009). Moreover, according to the International Labour Organization (ILO), LED strategies involve local stakeholders, attributing to a wider range of socio-economic goals (ILO, 2008). The development of a country is increasingly not only measured as economic performance, but instead about sustainable development of economic, social and environmental goals (Ruecker & Trah, 2007). As stated by Christensen & Van der Ree (2008), LED aims to make the most of local (natural) resources, in such a way that it will lead to increased returns from the global market. Theoretically, LED is often seen as a ‘branch’ of regional development theory, exploring the actors, structures and processes of economic growth within a specific geographical space (Pike et al, 2006; Gomez & Helmsing, 2008).

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level of IPR – with the right mix of domestic and foreign innovation – the GDP in developing countries will be the highest (Chen & Puttitanun, 2005). Balancing foreign and domestic innovations can thus lead to an increase in GDP in developing countries.

With regard to domestic innovation, the national innovation system of the country determines the direction and rate of the innovations that can be created within such a system. This system includes the relationship between organizations, institutions, and socio-economic structures (Lundvall, Joseph, Chaminade & Vang, 2009). The national innovation system was described by O’Doherty & Arnold (2003) as depending for a large part on the interactions between universities and the industry, which in turn are affected by politics, market demand, and the general infrastructure in the country. It is important to note that the innovation system in a developing country may not be fully developed, hampering the rate of domestic innovations that can be achieved.

Pennink (2014) devised a model to connect the set-up of local economic activities with different economic levels. On the national level, he argues for the importance of the interaction between government, universities and business for LED, which is also called the Triple Helix Model (Pennink, 2014). This is very similar to the interactions in national innovation systems (i.e. the relationships between universities and the industry, which are affected by politics). In a way, these same interactions then influence both the opportunities for LED and domestic innovation, which are essential drivers of economic growth. Studying these three groups of stakeholders (defined by Freeman (1984) as: “any group or individual that the firm needs in order to exist, who can affect or is affected by the achievement of an organization’s objectives” (pp.46)) then seems a logical next step in this research, while focusing on avoiding the natural resource curse in developing countries.

Research Question

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Therefore, it will be an interesting research path to analyze the recent developments in Tanzania by interviewing members of the different stakeholder groups mentioned earlier. These stakeholder groups often have diverging interests, and by including three different perspectives, it is possible to gain deeper insight into the situation. This will be discussed more elaborately in the methodology section. As we have seen earlier, there is a need for more research concerning the natural resource curse; why do some countries prosper while other countries fail in the situation where natural resources are abundant? This leads to the following main research question:

How can the natural resource curse be avoided in the start-up of natural resource exploitation in developing countries?

This main research question is divided into the following three sub-questions:

a) Which factors can be identified, that influence the start-up phase of the natural resource exploitation positively or negatively?

b) What role will these factors play in a status-quo, positive-but-plausible, and negative-but-plausible scenario for the natural resource exploitation?

c) Which of the identified factors from question a) are crucial for achieving success, and avoiding failure, of the natural resource exploitation?

The first sub-question will be answered through the interviews (see interview guide in Appendix I), and the second sub-question will be answered through combining the different scenario descriptions from each main interview into three short narratives. The third sub-question will be answered by performing a multi-criteria analysis on the identified factors from sub-question a. In sub-question c, success is meant in terms of inclusive economic growth, where local citizens in Tanzania also benefit from the exploitation. This division in three sub-questions that builds upon previous knowledge is part of the sequential academic problem-solution methodology (van Aken, Berends & van der Bij, 2012) that will be explained in more detail in the methodology section. Taken together, the answers to the sub-questions will give insight into how developing countries can avoid the resource curse by taking the resulting factors into account during the start-up of natural resource exploitation.

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13 METHODOLOGY

A case-study design was adopted for this study, as it is very useful in the exploration of a real-life phenomenon, while at the same time building upon, or strengthening, already existing knowledge (Yin, 2009). A case study is appropriate when there is a ‘how’-question, the researcher has no control over behavioural events, and the focus is on contemporary events (Yin, 2009). The situation in Tanzania was chosen as context for this study because it gives the opportunity to study current developments with regard to the resource exploitation; i.e. it allows for studying the factors that might influence the start-up process of this exploitation. The research involves multiple ways of data collection and analysis, i.e. several rounds of interviews, attendance of a conference, and the analysis of academic literature (Denzin & Lincoln, 2005). The research process can be characterized as sequential academic problem-solution, each step following from the data gathered in the previous steps (van Aken et al, 2012). This was achieved through multiple rounds of interviewing. Van Aken et al (2012) also argue in favour of a conceptual project design, which is an initial outline of the project, that may be adapted as insights evolve during the research process.

The current situation in Tanzania can be regarded as a field problem, described by van Aken et al (2012) as “the result of a certain perception of a state of affairs in the real world, with which one or more important stakeholders are dissatisfied” (pp.30). Field problems form an opportunity for theory-informed problem solving, including the comprehensive, critical, and creative use of state-of-the art literature and theory (van Aken et al, 2012). In order to create a clear focus in this research, one specific aspect of the situation was chosen and analyzed thoroughly. The authors describe this process as creating a ‘real problem’ definition from a problem mess: as the whole issue is too large and complex to analyze, it needs to be structured and one specific aspect needs to be identified that leads to the formulation of a focused research question. For this study, the choice was made to focus on the aspect of engaging three core stakeholder groups (i.e. government, industry, and universities) in order to discover crucial factors for the future economic development in developing countries, after the discovery of natural resources. The choice for these three specific groups was made based on previous research by i.a. Pennink (2014) and O’Doherty & Arnold (2003) as the interactions between these three groups form the basis of economic growth through LED and domestic innovation.

Data Collection

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Bryman (2004) argues that this method is justified and the validity of the results is assured, as this sampling method is more likely to deliver results relevant to the main research question. Including local residents and various interest groups is also found to increase analytical breadth, robustness of results, and legitimacy of the findings of academic studies (e.g. Florino, 1989, Bohman, 1996). The aim at the start of the research was to conduct approximately 9-12 interviews in total, and the final data collection consisted of two preliminary interviews in the Netherlands, five main interviews and a two-day conference in Tanzania, and one final expert interview back in the Netherlands (see Table 1 below). Consequently, the total number of interviews was eight, which is due to several factors, among which the difficulty to reach people willing to be interviewed, and the limited time frame in which the study was executed. This will be elucidated in the limitations section.

The data collection thus took place in three different rounds, as is shown in Table 1 below. Due to the promise of anonymous data collection, the names of the interviewees are to remain confidential. However, the interviewees are from a range of companies and other organizations including the Tanzanian government, oil and gas companies, NGOs (Non-Governmental Organizations), the University of Dar Es Salaam and the Dutch Embassy in Tanzania. The companies that were present at the Oil and Gas Conference are not included here, but will be discussed more elaborately further on in this report.

Table 1: Data Collection Overview

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Data Analysis

It is advocated by Jick (1979) to mix quantitative and qualitative methods. The author argues that the two should be viewed as complementary rather than rivals, because each methodology has value in filling the weaknesses of the other. Two distinct methods are used in this case study in order to analyse the interview data gathered; scenario building and multi-criteria analysis.Combining different data sources and analysis methods leads to multiple steps in the data analysis and increases validity of the findings. There are a few general guidelines that can be used to judge the validity and overall quality of research findings in a qualitative study. First of all, it is very important to not only report what has been done and found, but also how this was reached, i.e. the research process (Ritchie, Lewis, Nicholls & Ormston, 2013). Some widely known biases include the ‘holistic fallacy’ where interpretation becomes more patterned than the events actually are, ‘elite bias’ where data from high-status participants is overweighted, and ‘personal bias’ arising from the researcher (e.g. Sandelowski, 1986; Thurmond, 2001). There are several solutions to these biases, although some may be hard to overcome (selecting a representative sample may seem easy in theory, but very difficult to achieve in practice). Triangulation, checking out rival explanations, and asking for feedback from participants are valuable tactics to decrease the probability of such biases arising, and limit the negative effects that these might have if it does occur (Miles et al, 2013). The validity of this research was increased through triangulation; using multiple methods and data sources in the study of one phenomenon (Denzin, 1978).

Data Matrices

The first step in data analysis is to build matrices from the raw interview transcripts. Miles, Huberman & Saldaña (2013) advocate the use of matrices to condense data and findings from a study, in order to facilitate further analysis and clear presentation of conclusions. This is especially relevant for qualitative data, as the making of such matrices enhances the understanding, calls for careful analysis of transcripts, and provides a clear focus on the research question. Moreover, it is part of reporting the process as encouraged by Ritchie et al (2013). Qualitative data analysis is often said to be a subjective process, and therefore, the authors encourage researchers to include matrices in their reporting, as the reader can then clearly follow the journey from raw data towards conclusions (Miles et al, 2013).

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16 Scenario Building

Chermack (2011) proposed three main phases of the scenario building process; project preparation, scenario exploration, and scenario development. The project preparation consisted of desk research and preliminary interviews as described earlier, and the second phase, scenario exploration, contained the main interviews with several stakeholders, and the conference attended in Tanzania. Data from these interviews was supplemented by literature and informal conversations with multiple Tanzanians and expats in Dar Es Salaam. Lastly, for the scenario development, a systematic analysis of the interview data was done using the format of matrices and the further guidelines for high-quality conclusions from qualitative data, developed by Miles et al (2013). For example, this included not only looking at commonalities and patterns, but also searching whether preliminary findings could be disconfirmed by other parts of the dataset – thus strengthening the methodological validity of the findings that could not be disconfirmed.

The first steps of the data analysis were focused on discovering the various factors mentioned by the interviewees, and trying to group these into broader concepts in a coding process. Then, the uncovered ‘higher-order’ factors were implemented into several possible futures for the economic development arising from the natural resource exploitation. More specifically, following Lachman (2011) and Chirozva et al (2013), three scenarios were constructed; (1) a status-quo scenario in which the current practices are continued, (2) a ‘positive-yet-plausible’ scenario, and (3) a ‘negative-‘positive-yet-plausible’ scenario. The factors were also implemented into each scenario (Lachman, 2011). Ultimately, these scenarios aim to gain deeper insight into the factors that play a role in the natural resource exploitation in Tanzania, and which factors would contribute to a better or worse outcome in the economic future of the country. The factors and scenarios will be described in the results section.

Multi-Criteria Analysis

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field of energy, which makes it especially applicable in this study. The main difference between MCA and conventional risk assessment is that not one single course of action is examined, rather the starting point is a range of different options, and a relative performance ranking of these options is sought (Stirling & Mayer, 1999). The mathematical details of this methodology are further described in Appendix VIII.

As mentioned, the ranking scheme in Appendix II was used to gather data for this second type of data analysis. The added value of the MCA is that it allows for insight into how the different factors are currently scoring in terms of development (i.e. is a factor currently very weak with a score of one, or average with a score of three?), which factors need rapid or considerable improvement, and which ones require less drastic changes to arrive in a positive scenario. This gives the results of this study a more quantitative dimension, thereby increasing the objectivity of the findings and the quality of the overall study. The MCA will focus on two specific characteristics of the factors: the uncertainty and the level of change required (based on Lachman, 2011).

Combining Quantitative and Qualitative Research Methods

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18 RESULTS

Background and Preliminary Data

The preliminary interviews, desk research and attendance of the Oil and Gas Conference combined have provided some interesting insights into the background against which the other findings should be interpreted. Before turning to the factors identified that could lead to avoiding the resource curse, it is important to describe said background. The desk research has been described earlier in the Context section of this study, however the preliminary data and background that were collected in Tanzania are more appropriate in this Results section. The African Oil and Gas conference, which took place in the main conference centre of Dar Es Salaam on 27-29 August 2015, was described by the organizing parties as: “the hub for key players in the Oil and Gas industry, attracting leading oil, gas and petroleum companies from around the world. Oil & Gas Africa will offer participants the opportunity to showcase the industry's latest achievements and technologies while networking with key figures from the region's oil and gas sector. This event is not only a key international event on Oil and Gas exploration in Tanzania but also an important platform for establishing and building business relations globally.” (Expogroup, 2015). Attending the conference in Dar Es Salaam provided preliminary insights into the current operating companies in the sector, as well as a tentative outlook on which companies (from which countries) are looking to get an early foothold in the Tanzanian gas market. An overview of the companies is given in Appendix III. Figure 1 shows the home locations of the companies looking to invest in Tanzania.

Figure 1: Overview of conference exhibitors by location

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where the potential investors for the sector come from, as is shown in Figure 1. The investors that attended the conference come from quite varied places, however several countries or regions are missing: apparently companies from North and South America are still hesitant to invest in Africa, and surprisingly there are not many investors from neighbouring countries either. European and Asian companies were the most prevalent on the exposition, and were also notably willing to talk to each other and network for business relations.

Sub-question a: Factors

The main goal of Matrix 1 and 2 (Appendix IV and V) was to discover which factors are important for a successful natural resource exploitation. One thing that immediately becomes clear is that many factors are mentioned repeatedly, and moreover that each factor is mentioned in at least one other interview, either specifically as a factor, or during the rest of the interview (see also Matrix 4 in Appendix VII). This is an early indication that the dataset is comprehensive and that the mentioned factors are indeed relevant across multiple stakeholder groups. A look at Matrix 1 also shows that there is quite a big difference between the factors, and the points that the interviewees would see as priority when asked what decisions they would make as a president. The question arises why the decisions would be so different; one explanation could be that indirect questions often reach more ‘real’ answers as opposed to direct questions, especially in the case of sensitive issues (e.g. Kvale, 1996). The factors – ranked in order of how frequently mentioned – are shown in Table 2 below.

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Another interesting point is not the common factors, but the ‘holes’ in the matrices instead; why did some interviewees not mention certain factors? One explanation could be that people feel obliged to mention some factors, and simultaneously feel that it is not ‘right’ to mention other aspects that might be important as well. This is why the involvement of people with different backgrounds and occupations is so important in this study, in order to ensure that as much factors as possible were uncovered (Trutneveyte et al, 2011).

Sub-question b: Scenario’s

With these factors in mind and the scenario descriptions derived from the interviews, three scenarios were written and revised several times. This has resulted in three short narratives, inspired by the interview data and background information gathered prior to, and during the visit to Tanzania. The choice for a ‘current’, ‘positive-yet-plausible’ and ‘negative-‘positive-yet-plausible’ scenario was made based on previous research by Lachman (2011) and Chirozva et al (2013). The previously discussed factors are mentioned in the scenarios when relevant (in italics), however there is no direct relation between each individual factor and one specific scenario as these were separate questions in the interviews. Some interviewees mentioned the same factors to be important in the scenarios whereas others came up with a more descriptive style of answer to the scenario questions, not referring back to the earlier mentioned factors. Several factors are mentioned in multiple scenarios, indicating that those would indeed be very important for the future of Tanzania’s economy and the benefit of the local citizens. Current Scenario (Status-Quo)

First of all, the interviewees were asked to describe their view of the current scenario in Tanzania. Elements considered important in the current scenario included considerable uncertainty about the future location of the LNG plant (land), the recently implemented laws that have not been tested adequately yet (legal; government), and a lack of transparency with regard to the product-sharing agreements between the government and foreign oil and gas companies (transparency). On the other hand, positive signs are also seen with the first investors starting to operate in Tanzania, as well as several educational and vocational trainings being issued across the country (knowledge and education). Efforts are also made to assure better information access for citizens about natural gas, and how it can add value to benefit the citizens, and plans are made for a revenue fund (revenues). From the conference, it became clear that there is a considerable number of companies willing to invest in the country (finance and capital). For the near future, this would mean that investors may start the first big projects in Tanzania, thereby helping the country’s economic development. So, the current scenario shows mixed signs of positive aspects, and other issues that are still cause for some concern.

Positive-Yet-Plausible Scenario

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contracts). Also, the importance of fully implementing the new laws (legal; government), and increased accountability and transparency (transparency) were mentioned to be important in assuring a positive outcome for the natural gas exploitation. Considerable investments would be made across several sectors (finance and capital), and education and entrepreneurship programs would be important to further develop the country and the expertise of local citizens (knowledge and education). The revenues from the gas exploitation would be allocated to a revenue fund, and be spent wisely on projects that help the further economic development of the country by the government (revenues; government). Lastly, the specific and high-tech knowledge of the foreign companies would be transferred to locals in the positive scenario (local participation), so that the Tanzanians could run the entire extraction and exploitation process by themselves in the more distant future.

Negative-Yet-Plausible Scenario

Lastly, the interviewees were asked to construct a scenario that was negative but still plausible for the future exploitation of resources in Tanzania and how that would affect the country. One interviewee described the situation where exploitation would be started ‘too soon’, i.e. when the country was not ready in terms of institutions, legislation, infrastructure, and so on (legal; government). This would be bad because then there would be room for corruption. The term corruption was also mentioned in another interview as reducing the amount of money available to develop the country and improve the life of the citizens. It diminishes the chance that the revenues from the gas can be used to improve the current conditions in the country (revenues). Also, a bad implementation of the new laws and a lack of knowledge about the gas exploitation were mentioned to be negative aspects (knowledge and education), as these may lead to conflicts within the country. Finally, loopholes in contracts were mentioned to limit the degree to which Tanzania can assure revenues from the gas exploitation (contracts), as multinational companies can benefit from their superior legal knowledge and their experience with drawing up these contracts. Not changing these contracts could be part of to a bad scenario in the future.

Sub-question c: Multi-Criteria Analysis

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Appendix VIII shows the steps that were taken in the multi-criteria analysis. Each factor found through the interviews (in total 10 factors) was assigned a weight based on in how many interviews it was characterized as a factor. Then, this was combined with the scores that were given on the ranking scheme for each factor. These factor scores can be found in Appendix IX. The total scores for each scenario (see Appendix X) are not surprising; the positive scenario was designed to score better than the negative scenario, however it is interesting to look into the differences between the negative and positive score of each factor (this indicates the relative uncertainty of the concerned factor). Moreover, the difference in average score between the current and the positive outcome indicates the level of change that is needed on that aspect to help Tanzania (or another developing country) avoid the natural resource curse. These differential scores can be found in the two final columns of the table in Appendix X. Table 3 below ranks the factors with relatively the highest uncertainty (column 1), and those requiring the highest level of change (column 2).

Table 3: Factor Ranking Overview

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23 DISCUSSION AND CONCLUSION

Conclusion

This study aimed to answer the question “How can the natural resource curse be avoided in the start-up of natural resource exploitation in developing countries?”. This was done by several rounds of data collection both in the Netherlands and in Tanzania. Then, the interview data was analyzed, rewritten into scenario’s, and finally a multi-criteria analysis has yielded seven crucial factors. The factors that have proven to be the most critical to the success of the natural resource exploitation according to the MCA are: (1) the government (i.e. stable, non-corrupt, capacity), (2) knowledge and education (i.e. know-how, human resources, information access), (3) local participation (i.e. local companies take part in the value chain, transfer of knowledge to local firms), (4) revenues (i.e. the allocation and the use of the planned revenue fund), (5) transparency (i.e. within the value chain and clear accountability), (6) legal aspects (i.e. regulations and enforcement of the law), (7) finance and capital (i.e. finance, investments and capital). The scenario descriptions have given more insight into what role these factor might play in different possible futures for Tanzania. The critical factors that were uncovered in this study will need a lot of effort and work in order to make sure that Tanzania, or other developing countries, can benefit from natural resource exploitation in the future, and to make sure that inclusive economic growth (beneficial for the locals) results from it. Keeping these general factors in mind can help the government and other stakeholders to focus on the most pressing issues in order to avoid the natural resource curse.

In the introduction and literature review, frequent references have been made to two distinct drivers of economic growth; innovation and local economic development. Looking at the factors resulting from this study, local participation and information access for citizens (part of the knowledge and education factor) are relevant for LED, but no direct links to innovation (either foreign or domestic) can be found. One explanation for this would be that the national innovation system of Tanzania is currently not strong enough to conduct domestic innovation. Improvement on the crucial factors from this study may lead to an investment and general business climate that is more conducive to domestic innovation, in turn leading to further economic development and welfare for the citizens. Another explanation could be that there is not enough knowledge available to people to start thinking about the potential role that (domestic) innovation could bring to the country. This is also an interesting path for future research, delving deeper into the potential for innovation in developing countries.

Implications

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that were identified are applicable on a broader basis than just case in Tanzania; by grouping the specific terms mentioned in the interviews into broader factor concepts, the results of this study are also interesting for policy makers, researchers, and practitioners in other locations. Based on the findings of this study, the following proposition can be formulated, that may be used for quantitative research in further studies:

P1: “Taking into account (1) the government, (2) knowledge and education, (3) local participation, (4) revenues, (5) transparency, (6) legal issues, and (7) finance and capital, will decrease the chance that a developing country suffers from a natural resource curse, and increases the opportunities for inclusive economic growth for that same country.”

Limitations and Future Research

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25 ACKNOWLEDGEMENTS

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31 APPENDIX I

Interview Guide

Stage 1: Arrival

Hello, my name is Vera Bekkers. It is very nice to meet you! Thank you very much for taking the time to talk to me today. As I already explained shortly in my email / on the phone to you, I am currently doing research on the topic of the recent natural gas findings in Tanzania. However, first I would like to know something more about you. Could you tell me something about your background and your current work?

Stage 2: Introducing the research

I will shortly explain the nature of my research. I am currently doing two Master programmes at the University of Groningen, in the area of International Business and Strategy & Innovation Management. In order to graduate, I am now doing research for my final thesis. I became interested in the topic with the help of my supervisor. Also, in the area where I am studying, there is exploitation of natural gas, and the effects of that on the environment and locals is very interesting to see. However, since I am doing an international program, I was looking for an international thesis topic. Due to the recent findings of gas in this area, I decided to come here. The general question that I will be trying to answer in my research is the following: “How can the natural resource curse be avoided in the start-up of natural resource exploitation in developing countries?”. More specifically, I am trying to uncover factors that can influence the success (and avoid failure) in terms of benefit for the local citizens arising from the resource exploitation.

In order to answer this central question, I will be talking to different people during my stay here, from different backgrounds and with different views. By doing that, I hope to gain deep insight into how the exploitation can be managed successfully. I hope you can help me with identifying some of these factors today! Now, before I turn to the more specific questions regarding my research, I would like to know if you would mind if I recorded this conversation? It will of course remain fully confidential, but it would help me a lot with my research if I could listen to it again when I return home to write the paper. Is that okay with you?

Lastly, I would like to say that there are absolutely no right and wrong answers; I am very interested in your viewpoint and opinions, that is why I came here today. So please do not hesitate to share this with me.

[recording of the interview starts from here] Stage 3: Beginning the interview

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32 Stage four: During the interview

The next part of the interview concerns scenario building. I will ask you to describe three alternative scenarios from your point of view. Again, there are no right or wrong answers, I am only interested in your opinion. Let us start by a scenario that I like to call “status quo”: by that I mean given the current state of affairs here in Tanzania, how do you think the exploitation of natural gas will go in the next, let’s say five to ten years? Now we have discussed the “status quo” scenario, I would like you to think about a scenario (so, a future) that you would regard “positive” – in other words, if the situation would develop very well from your point of view, but still be realistic, how would the future in the next five to ten years of the exploitation look like?

On the other hand, it is also important to have a look at a scenario that I have labelled “negative but realistic”, can you tell me something about what a future would look like that is not very well from your point of view, but still realistic. How would the future then look in the next five to ten years of the exploitation?

Now, we have discussed three scenarios. Thank you very much for you input! It was very interesting to hear some of the factors and the descriptions of the possible futures that we discussed today. The next question is a little bit different: I would like you to imagine that you would be in charge of all the decisions about the natural gas exploitation in Tanzania. In other words, that you would be the president of Tanzania! Could you tell me something about what decisions you would make?

Lastly, I would like to go back to the factors that we discussed at the beginning of the interview. If I remember correctly, you mentioned …, …, …, as important factors for the natural resource exploitation here in Tanzania. If I would ask you to make a ranking of the top-three most important factors, could you explain me your number 1, 2, and 3? Then we can also fill in the ranking scheme that I have brought with me today. I will explain shortly how it works with the scores first.

Stage five: Ending the interview

Thank you very much for taking the time to talk to me today! You helped me one step further in my research and I am very grateful to have the opportunity to meet with you. Is there anything else you think I should know, but we have not discussed yet?

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33 APPENDIX II

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34 APPENDIX III

Tabular Overview of Conference Exhibitors

Company Name Brief Description Country of Origin Present in TZ?

Vizocom Remote communications and ICT for

O&G companies United Arab Emirates No

HEGY Engineering Ltd Sole distributor of Timsan transformers in

Tanzania Tanzania Yes

Synergy Power Trading Diesel generators and construction

materials United Arab Emirates No

Kalhour Oilfield Equipments Pipes, fittings, flanges, valves, gaskets United Arab Emirates No

Durulsan LPG equipment and plant products Turkey No

Signal Electricals Cables, lighting, transformers, generators Turkey No

Haivol Electrical Distribution and overhead power line

equipment China No

Yingly Solar Solar modules, lights and power systems China No

Mitas Energy Overhead transmission towers Turkey No

British Polar Engines Offshore services, telecom services, power

backup United Kingdom Yes

Finepac Structures Oil and gas separator internals and

distillation columns India No

Globegas LPG terminals and filling plants,

high-pressure vessels India Yes

Jetair Emergency evacuation in remote areas United Kingdom No

FB Attorneys Legal matters for O&G companies Tanzania Yes

EEE Anlagenbau Engineering for gas-fired power plants Germany No

Red Sea Housing Africa Remote Site Modular Accommodations Ghana Yes

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35 APPENDIX IV

Matrix 1: Critical factors, Decisions as President and Main Quote

Critical Factors for natural gas exploitation

Decisions as president or recommended actions in the near future

Quote to illustrate main viewpoint of interviewee

Interview 1 1. Legal Framework, 2. Non-corrupt and

stable government, 3. Government Capacity

Improving infrastructure, using gas for electricity, capacity building for transparent

gas value chain,

"On the one hand postponement, although that does not have to be negative, because then there is more time to improve the institutions.

(…) The biggest concern is that only a very small group of people will benefit from the

natural resources."

Interview 2

1. Finance, 2. Participation of local companies, 3. Transparent value chain, 4. Revenue allocation, 5. Oversight, 6. Capacity

of agencies in sector

Sort out product sharing agreements, reorganizing the national oil company, develop skills and build capacity of regulatory agencies

and ministry in the gas sector

"If these mechanisms [i.e. laws and regulations] all work and are effective, I think there is a chance there would be good results. So I think the setup is good, but to put it into

effect is a different story."

Interview 3

1. Knowledge and know-how, 2. Quality of industry standards, 3. Capital, 4. Human

resources and expertise

Devise programs / courses for people to enhance knowledge about industry, support

SMEs to get involved in gas value chain, better coordination of efforts to develop the

country

"You know the thing is that our constitution gives too much power to the president and the

leadership. So normally if you get a good leader, all other things will depend very much

on his ability and the cabinet that he will choose."

Interview 4

1. Land issues, 2. Current contracts, 3. Legislation, 4. Future contracts, 5. Revenue

fund

Resources should benefit the country (not be a curse), revenues from the fund should go to

education, develop the infrastructure

"Now the opposition party is strong, which is good, because now there is competition. And where there is competition, there will be

development."

Interview 5

1. Transparency / accountability, 2. Citizen's information access, 3. Education, 4. Law enforcement, 5. Knowledge transfer to local

companies

Raise awareness among locals about benefits of gas, give citizens access to government information, reviewing and revising current

contracts

"It is good to work with the foreign guys, but the resources, we would like a situation where

there will be a kind of transformation in terms of technical knowledge and technology and other areas, so that at the end, we take over.

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36 APPENDIX V

Matrix 2: Overview of Interviews and Factors

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37 APPENDIX VI

Matrix 3: Factors and Number of Other Mentions* of Concept during Interviews

* The ‘other mentions’ arise from careful analysis of the interview transcripts including the other questions about the scenarios; if the concept was mentioned there (but not as a factor in the previous question) it was counted in this category. This results in a more comprehensive count of the concepts.

Interview 1 Interview 2 Interview 3 Interview 4 Interview 5 Count Total

Factor 1 "KNOWLEDGE AND EDUCATION"

X X

Knowledge / know-how; Human resources

and expertise X Citizen's information access; Education 4+3 7 Factor 2 "GOVERNMENT" Non-corrupt stable government; Government capacity Oversight; capacity of industry agencies X 4+1 5

Factor 3 "LEGAL" Legal framework X X Legislation Law enforcement 3+2 5

Factor 4

"CONTRACTS" X X

Current contracts;

Future contracts X 2+3 5

Factor 5

"REVENUES" X Revenue Allocation Revenue fund X 2+2 4

Factor 6 "LOCAL PARTICIPATION" X Participation of local companies X Knowledge transfer to local companies 2+2 4 Factor 7 "TRANSPARENCY" X Transparent value chain Transparency / accountability 2+1 3 Factor 8 "FINANCE

AND CAPITAL" Finance Capital X 2+1 3

Factor 9 "LAND" X Land issues 1+1 2

Factor 10

"STANDARDS" X

Quality of industry

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38 APPENDIX VII

Matrix 4: Scenario Descriptions**

** In interview number four, the respondent was not comfortable explaining the scenarios from his current position as a government official, therefore this question was not answered in that interview (marked as X).

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39 APPENDIX VIII

Methodology for Multi-Criteria Analysis

The total performance score for each option (or scenario) is determined by a ‘linear additive weighting’ multi-criteria procedure, which can be carried out in Microsoft Excel. Here, the ranking of the different factors (i.e. importance weight) can be included as well, by assigning priority to some factors over others. For this study, the importance weights were derived from the number of times a factor was mentioned in the different interviews, as shown in the final column of Matrix 3 (Appendix VI).

The total set of criteria and rankings needs a thorough analysis before the calculations. It is important to detect overlapping criteria early, to prevent the scores from being assigned twice to comparable concepts (i.e. grouping the factors under broader constructs as seen in Matrix 2 (Appendix V)). The figure on the side gives a short description of the formulas used by Stirling & Mayer (1999).

The authors deliberately chose a simple formula: “Not to allow the quantification procedure to obscure important qualitative features of the appraisal. In any case, for all their complexity, none of the many elaborate techniques developed in multi-criteria evaluation (...) may claim fully and finally to have resolved the fundamental theoretical problems of social appraisal. It therefore remains an open question whether the loss of simplicity and transparency is worth the sometimes marginal improvement in fidelity.” (Stirling & Mayer, pp. 69)

Finally, this results in a ranking of the options, reflecting the total result of the multiple factors. The scenarios can be compared, but the rankings more importantly give information on the various factors; which ones need the most improvement from current to positive scenario, and which ones are the most uncertain. By assessing each factor on these two criteria, it is possible to determine which ones can be classified as ‘crucial’ (see Lachman, 2011) for the avoidance of the resource curse.

Figure 2: Linear Additive Weighting Aggregation Model

AVOIDING THE NATURAL RESOURCE CURSE

AVOIDING THE NATURAL RESOURCE CURSE

THE CASE OF THE TANZANIAN NATURAL GAS EXPLOITATION

TABLE OF CONTENTS