The Citizen (Dar es Salaam)
27 April 2011
editorial
The economy is experiencing daunting challenges, which, if left unchecked, could seriously erode the gains made in efforts to eradicate poverty and develop the country. The economic difficulties have been worsened by reliance on expensive and unreliable power and energy sources. Despite an 18.5 per cent increase in electricity tariffs this year, the supply remains highly erratic.
The Confederation of Tanzania Industries (CTI) has estimated the total cost of the power supply woes to the economy at Sh10 billion this year.
The political turmoil and instability in North Africa and the Middle East have led to higher oil prices in the world market. As a result, pump prices in Tanzania have surpassed an all-time high mark of Sh2,000 a litre. The spillover effects of the high oil prices are many. They include unaffordable food prices due to increased transportation costs.
As oil prices keep rising, transporters might find it too costly to ferry commodities to remote areas, causing acute shortages. All these factors are already pushing up inflation. The annual headline rate currently stands at eight per cent, from 4.2 per cent last October.
But the situation is compounded by the fact that the global economy is in serious trouble. It is, in fact, just a matter of time before another global crunch ensues. Due to the high level of integration and dependence on external Budget support, difficulties in the global economy are directly felt here.
No immediate effects
Economists are arguing that high energy and power prices might not affect the local economy immediately because it is agriculturally based. Good rains and good harvests are more important for an agrarian economy. This is also the reason why Finance minister Mustafa Mkulo has ruled out an immediate reduction in taxes on oil imports, as Kenya did last week.
But the government must act now to avert further damage to the economy. This is no time for excuses and justifications because if oil prices keep rising, life will soon become unbearable for the common mwananchi and this could lead to unrest, as is already happening among our neighbours.
What should then be done? The government must come up with an immediate and long term solution to the electricity problem. With the abundant hydropower potential and natural gas reserves, there is no good reason why electricity generation should be a problem. The fledgling manufacturing industry needs stable and cheap power supply to develop. The CTI says the power hitch could result in a two per cent slump in output in the manufacturing sector.
Something should also be done about the high oil prices. Reviewing some of the fees and taxes remains a credible option. The oil consumers’ association says some fees are unnecessary and unjustifiable because they do not go to the central government’s coffers. They include those paid to Sumatra and Ewura. It is time the government started funding the operations of these regulatory agencies.
These agencies profit from high oil prices because they get more revenue from them. This hampers their independence and undermines their regulatory credibility. There is a need to step up the exploitation and use of the abundant natural gas reserves to run our industries, and vehicles and generate power to reduce reliance on imported oil.
Why should we continue to spend so much foreign currency importing oil while we have huge reserves of natural gas? Experts have established that our gas reserves are enough to run the entire economy.
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