Skip to main content

O n 1 March the Tanzanian government approved Tesla, Inc’s deal with Uranex Tanzania Limited (Uranex) and Magnis Technologies Tanzania Limited (MTT). According to the Binding Offtake Agreement, Tesla will purchase a minimum of 17,500 tonnes of graphite and a maximum of 35,000 tonnes from Magnis Energy Technologies Limited (MET), the parent company of MTT, at a fixed price over three years as from 2025.

This announcement follows the government’s approval of the construction of the 1,443-kilometre East African Crude Oil Pipeline (EACOP) a few weeks prior. It paves the way for the development of the world’s longest underground heated pipeline when it reaches completion in 2025. Both transactions have re-focused attention on Tanzania’s extractives industry and come hot on the heels of President Samia Suluhu Hassan’s (Hassan) two-year anniversary in office. They send a strong signal for the president’s remaining two years in office before the country’s next general election in 2025.

Hassan charts her own path

Former Vice President Hassan was sworn into office in March 2021 following the unexpected death of former president John Magufuli who passed away after a short illness. Magufuli rose to power on the back of public discontent with perceived rampant corruption and maladministration. Nicknamed “the bulldozer”, Magufuli was a career politician who had served in various roles with a strong focus on infrastructure development.

Inaugurated in 2015, Magufuli adopted an adversarial stance towards the private sector, which had to adjust to higher taxes in the mining, telecoms, and shipping sectors. Additionally, companies and high-profile businesspeople experienced enhanced scrutiny from tax authorities. Rumblings of discontent were largely isolated to the private sector in his first term until the shortfall between rhetoric and action grew wider. The Covid-19 pandemic and Magufuli’s refusal to introduce vaccines tested his popular support.

Hassan ascended to the presidency amid a pandemic, regional isolation and tepid relations between the government and private sector. She also unexpectedly became the most senior Chama Cha Mapinduzi (CCM) party member in government. Much has been made about Hassan becoming east Africa’s first female president but less about her successful navigation of Magufuli’s legacy while charting her own path.

Hassan’s actions since assuming the presidency demonstrate a delicate balancing act between assuaging her party’s concerns of a break with the past while rebuilding relationships with the private sector and regional leaders. In February 2022 Hassan lifted the ban imposed on four local newspapers by Magufuli in 2019. A year later, she lifted the ban on opposition party activities and rallies imposed by her predecessor in 2016. The country is going to the polls in 2025 and voters will cast ballots for the president and members of parliament. Although CCM is widely expected to win by a significant margin, a transparent, free and fair election will legitimise the election result. Easing restrictions on the media and opposition parties forms a crucial part of shoring up public support and international backing.

While Magufuli was famously disinclined to leave the country, Hassan has embarked on a strategic diplomatic offensive. Kenya, Uganda, Rwanda, Democratic Republic of Congo, Ghana and most recently South Africa have received the president, with Mozambique and the challenging security situation in the north receiving increased attention. She has visited nearly twice as many countries in 2022 than Magufuli did in his six years in office. Tanzania’s more muscular foreign policy has been well-received by both the East African Community (EAC) and Southern African Development Community (SADC), of which Tanzania is a member.

Making friends along the way

Hassan’s overtures towards regional neighbours resulted in Tanzania and Kenya agreeing on 10 October 2022 to fast-track the development of a 600 kilometre natural gas pipeline running from Mombasa to Dar es Salaam. Both countries will derive trade and energy benefits from the project. News of the pipeline builds on progress made in 2021 that resulted in the lifting of 54 non-tariff barriers between the two countries.

Domestically, construction of Tanzania’s USD 30 billion liquefied natural gas (LNG) export terminal had been stalled for six years until the signing of a framework agreement between the government and Equinor and Shell in June 2022. Europe has an acute need to diversify its energy sources; securing gas from north and east Africa will increasingly become a necessity amid shifting geopolitical configurations.

Regarding oil and associated infrastructure, warmer relations with neighbouring Uganda have precipitated the start of construction on the EACOP. The USD 3.5 billion heated pipeline will transport crude oil from Uganda’s Late Albert oil fields to Tanga port in Tanzania after which it will be exported.  On 18 January Uganda issued a tender award for the construction of the pipeline to East African Crude Oil Pipeline Company Limited. TotalEnergies holds a 62 percent stake in the venture, along with the Uganda National Oil Company, Tanzania Petroleum Development Corporation and China National Offshore Oil Corporation (CNOOC), which hold 15 percent, 15 percent and 8 percent respectively.

The start of construction had been held up due to Ugandan President Yoweri Museveni’s hard-line stance via-a-vis TotalEnergies, which necessitated some deft diplomacy to relax the long-standing president’s intransigence. Environmental activists and 260 community groups in both Uganda and Tanzania have criticised the pipeline. The European Union added its voice on the basis of human rights violations and environmental concerns but presidents on both sides have dismissed the concerns; the principal companies involved in the pipeline’s construction have  reiterated their commitment and plans to causing minimal disruption to the environment and affected persons.

Uganda Tanzania pipeline route. Image sourced from: the BBC.

Just enough

The international discourse on climate change has whet investor appetite for access to critical minerals – graphite, lithium, nickel, manganese, and cobalt – that will fuel the just energy transition. Tanzania’s gold and gemstone sector has historically been the primary feature of the local mining sector. However, this is set to change. Securing access to critical minerals via a simplified but resilient supply chain is a priority for countries introducing regulatory frameworks that drastically reduce the use of fossil fuels in the short to medium term. Tanzania’s political stability and relatively benign business environment (Magufuli’s acerbic reforms notwithstanding) presents an attractive option.

Whether it’s Marula Mining’s strong copper play buoyed by increased demand or Tesla’s graphite deal, the mining sector is changing and the government is adjusting in tandem. In September 2022, the Minister of Minerals promulgated the Mining (State Participation) Regulations Government Notice Number 574 of 2022. This regulation allows the government to hold a 16 percent non-dilutable free carried interest (FCI) in any mining or mineral beneficiation venture. The government will have the same rights as any shareholder and receive dividends from the FCI. This shifts the dynamic between the government and in-country investors; robust stakeholder relationships and periodic temperature checks are more necessary that ever before.

Whereas offshore gas operators have had relatively limited contact with local communities, mining companies sit at the proverbial coal face. The illegal artisanal and small-scale gold mining is pervasive and while the same prevalence is largely absent across critical minerals, operators will not be able to afford being caught on the back-foot when it comes to managing community relations and engagement with local environmental non-governmental organisations, which now often have strong links to international counterparts.

Hassan did not need to announce that “Tanzania is open for business” when she took office because her actions have communicated it. Hassan is more open to engaging with external actors – governments and investors alike – than her predecessor but it may helpful to think of the government’s attitude towards foreign investment as sitting along a spectrum. Magufuli’s approach showed how challenging it can be for investors, particularly those in the mining sector, and the country’s willingness to stop or stall projects despite retarding its own economic development. Hassan has demonstrated a different style, but Magufuli’s approach remains accessible. Woe to the investor that causes that reversion.