Tanzania: From Tourism to Petroleum – Local Content Impact in Zanzibar

Tanzania: From Tourism to Petroleum – Local Content Impact in Zanzibar

On the face of things, the tourism and petroleum industries may seem poles apart, with one fueled by the exotic nature and unrivalled beauty of Zanzibar while the other could be viewed as a potential threat to the archipelago’s fragile eco-system. However, from an economic perspective, the two sectors have many commonalities. In fact the tourism sector’s experience provides compelling lessons that ought to be considered by Zanzibar as we embark on petroleum exploration.

The tourism experience: a bitter-sweet reality?

Over the last 30 years, Zanzibar has experienced tremendous growth of the tourism industry, and according to the World Bank (WB) the sector has registered a 13 percent year-on-year growth rate for four consecutive years.

The annual international tourists’ arrivals have increased from 18,000 in 1985 to 520,809 in 2018, and the sector now contributes 28 percent of the GDP, with 8,500 hotel rooms and 22,000 direct jobs. However, the World Bank warns that, despite the growing numbers of tourists and fiscal revenues collection, the industry is not contributing as it should to the overall economic development of Zanzibar.

This can be attributed to a number of factors such as poor government coordination, lack of integrated planning and coordination, poor product development and insufficient human resource capacity , all of which contribute to the leakage of tourism-related revenues that should have otherwise been retained in the local economy.

For instance, a WB study found that 80 percent of agricultural produce consumed in hotels is imported while another study revealed that of the total expenditure on wages, about 75 percent goes to expatriates, 18 percent to Tanzanians from the mainland and only seven percent for Zanzibaris.

Efforts to link local suppliers with big resorts are often tainted by poor quality, delays of delivery and failure by local enterprises to scaleup production. Financial constraints also hurt local businesses since big resorts/companies usually take time to clear their invoices. Consequently, Zanzibar’s tourism sector is forced to depend heavily on imports of both services and goods from the mainland, and other countries.

This reality serves as a harsh reminder that three decades on, we are far from achieving sustainable tourism, or ‘Tourism for All’ as laid out in Zanzibar’s Tourism Development Policy of 2003 (currently under review).

To remedy this situation the government and private sector must collaborate in the effort to build capacity and strengthen linkages between the industry and host communities in order to boost local content and benefit the local economy.

Linkages vs leakages

The Zanzibar Tourism Development Policy seeks to enhance linkages and minimize leakages which, it defines under clause 4.14 as “loss of income when the basic tourist required products come from outside Zanzibar and are imported.” For instance, a study conducted by Wineaster Anderson in 2013 – and updated recently – found that of all meat consumed in Zanzibar hotels only 14.8 percent is locally procured while 85.2 percent is imported. To be clear, this problem is not unique to Zanzibar and is often suffered by other tourist destinations.

Island states are especially prone to leakages due limitations of capacity to satisfy demands of the sector, geographical size, scarce natural resources and dependence on external means of supply.

Although the current Tourism Policy encourages businesses to maximize local content (LC) in products and services offered to tourists, critics point out that the current provisions are weak and too generic to bear any tangible results.

For example, under Section 19, the Tourism Act of 2009 provides that tour operation is reserved for Zanzibaris but local operators complain that this area that should have been a safe zone for them is being ‘invaded’ by some foreign entities with powerful connections in Zanzibar on one hand, while on the other hand, some local individuals have been fronting for tour companies that in reality belong to foreign-owned hotels that are bent on profit maximisation. In addition to these challenges, the serious gap in skills set and capacity of local enterprises further exacerbate the issue of leakages.

Although the introduction of a tourism management degree at the State University of Zanzibar is a commendable move, there remain much to be desired.

The tourism policy review should address issues of leakages and the increase of linkages by promoting local businesses and encouraging transfer of knowledge as well as succession plan to ensure Zanzibari graduates qualified in tourism management do actually become managers.

What of the complex petroleum sector?

The tourism industry’s experience and the failure to create greater linkages to benefit the broader local economy can only provoke the nagging question: are we ready for the complex petroleum sector?

The news of huge discoveries of natural gas deposits on the mainland and the prospecting for oil in Zanzibar have aroused much hope and huge expectations that the islands’ economy could rapidly transform should we hit a petroleum jackpot.

While Norway has managed to use oil cash to transform its economy for the benefit of its people, many resource-rich countries have fallen short of such promise.

According to Ross, oil and gas resources have at least three negative effects: elongating authoritarian regimes, increasing corruption and triggering violent conflicts in developing countries. This negative phenomenal often lead to the so-called resource curse, to which many a country has fallen victim.

Mindful of the curse and keen to prevent it, governments have opted for measures that ensure benefits beyond just taxes and royalties. In many resource-rich countries including Tanzania Local Content Policies (LCPs) have been implemented to achieve a broad-base economic outcome.

LCPs are considered to be a key policy intervention for promoting positive links between the extractive industry and national economies. Under the Oil and Gas (Upstream) Act 2016, LC means “the quantum of composite value added to, or created in, the economy of Zanzibar; through deliberate utilization of human and material resources and services in the petroleum operations in order to stimulate the development to encourage local investment and participation.”

In Brazil, the participation of local companies in the petroleum sector increased from 57 percent in 2003 to 75 percent by mid 2010. This growth represented an increased value of more than $21 billion in purchase of services and goods from within. Brazil’s success story was a result of policy geared towards protecting local businesses and promoting local industry through capacity building and financial support.

Further, the Brazilian government conducted a thorough needs assessment in order to understand the industry’s demands and set priorities in line with identified needs. As Zanzibar seeks to become a petroleum economy, it will be imperative to learn from the tourism industry’s mistakes and petroleum economies’ best practice.

What Zanzibar should do is 1)urgently formulate a petroleum local content policy and law that are both comprehensive and realistic 2) define a clear mandate and scope for who is responsible for LC coordination, implementation and monitoring 3) conduct needs assessment and develop capacity as necessary and 4) select priority areas of focus that can yield economic impact within a realistic timeframe.

The fact that 90 percent of services such as security and items like uniforms are imported suggests that Zanzibar has failed to maximise LC in the tourism sector and that is a mistake to be avoided at all cost in the petroleum industry if Zanzibar is to escape the resource curse.

Way forward: a call for action and capacity building

The government should start to explore the possibility of a national content approach, covering all sectors of the economy. Along with this, it will be paramount for Zanzibar to build local capacity by bridging the skills gap and espousing a business enabling environment and strategy to ensure the entry of local businesses.

The islands can also benefit from the existing catering/hospitality industry to service the petroleum sector. Other areas for capacity development should be agribusiness, transport, welding and fabrication as well as shipyards to support both fisheries and the petroleum sector.

As evidenced by the tourism experience, until capacity is developed, no amount of laws or regulations can create wealth for Zanzibaris as no international oil company (IOC) will accept sub standards for the sake of supporting local businesses. On the other hand, without a clear regulation IOCs will have little incentive to engage local firms as they already have their own networks of international suppliers.

Lastly, it is the writer’s firm belief that with political will, right policies, capacities and capabilities reinforced by transparency and accountability, not only will Zanzibar escape the curse, but will turn its tourism and hydrocarbons’ potential into real prosperity and become a model powerhouse in east Africa and the Indian Ocean.

Source: Citizen

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