Imagine the scene: in one hand, a government official holds the geological map of Kabanga, billions of dollars in nickel sulphides lying beneath the hills of Ngara. In the other, the blueprint of the Standard Gauge Railway extension and the Julius Nyerere Hydropower Plant. The temptation is almost irresistible: why not pledge one to finance the other? Why not use the ore as collateral to unlock the rail and power that Kabanga itself will need?
Politically, it is a perfect line for a rally. “Our minerals will build our infrastructure.” It taps into a deep yearning: that Tanzania’s resources should directly finance visible development. And in a climate where fiscal space is tight, donor appetite thin, and election cycles short, the shortcut has great allure.
But history whispers caution. Across Africa and Latin America, countries have mortgaged tomorrow’s resources for today’s projects, only to find themselves poorer, more indebted, and less sovereign. Commodity prices dipped, collateral evaporated, and lenders tightened the noose. What looked like free money turned into a trap.
Tanzania now faces the same choice with Kabanga Nickel. Do we treat it as collateral, to be pawned for quick loans? Or as a commodity, to be mined, taxed, processed and leveraged carefully over decades? The answer will shape not just Kabanga’s destiny but our economic credibility.
Why collateralisation is tempting
The attraction of using nickel as collateral is not difficult to understand.
First, fiscal pressure. Infrastructure is capital-hungry. The SGR already consumes billions; JNHPP is among the largest hydropower projects in Africa. The treasury is stretched. External borrowing is costly. In such circumstances, pledging a shiny resource in the ground looks like a way of unlocking “dead capital.”
Second, political resonance. Citizens are tired of seeing minerals leave the ground while roads, ports and hospitals remain underfunded. The rhetoric that “minerals will build infrastructure” resonates viscerally. It feels just, even patriotic. It allows leaders to stand on a platform and point to a mine, a railway and a power station as one story.
Third, sovereign impatience. Mines take years to come online. Infrastructure takes even longer. Leaders want progress within their tenure. Collateralisation looks like a way to compress the timeline: borrow today against minerals that will flow tomorrow.
In short, collateralisation is tempting because it offers the illusion of certainty, a direct link between ore in the ground and projects above it. But it is an illusion.
The dangers of collateralising nickel
For all its surface appeal, the strategy of mortgaging Kabanga nickel is fraught with danger.
A) Volatility. Nickel is a classic boom–bust metal. Prices spike on EV demand, then fall on supply gluts or substitution. Collateral values tied to such cycles are inherently unstable. If nickel prices fall, the collateral shrinks, but the debt remains. The sovereign balance sheet absorbs the shock, not the investor. In effect, Tanzania would be betting its fiscal health on a metal traded in London and Shanghai, beyond our control.
B) Property rights and contracts. Once the government grants a mining licence, the ore becomes the property of the investor, subject to royalties and taxes. Using it as sovereign collateral confuses ownership. Investors may rightly ask: if Dar es Salaam can pledge “their” ore for loans, what other surprises await? It undermines the rule of contract and invites arbitration. At best, it delays investment. At worst, it scares it away.
C) Sovereign credibility. Collateralised resource deals are rarely clean. They come with opaque terms, tied contractors, inflated costs, or repayment in kind. They signal desperation rather than discipline. Tanzania has worked hard to position itself as a credible borrower and a rules-based jurisdiction. Mortgaging Kabanga would send the opposite message: that we are willing to pawn national assets for quick cash. Creditors and rating agencies notice such signals, and they price them harshly.
D) Political fragility. Collateralisation feels patriotic at first, but when cycles turn, it breeds anger. Citizens ask why future wealth was mortgaged for projects that do not deliver promised benefits. The legitimacy of both government and investors suffers. What began as a proud slogan risks ending as a bitter grievance.
In short, collateralisation is not just financially risky; it is politically corrosive. It offers sugar today and leaves diabetes tomorrow.
The smarter play: multi-user infrastructure economics
If collateral is a trap, what is the alternative? The answer lies in building infrastructure finance not around one ore body but around multi-user economics and predictable rules.
A) Rail: spreading the load. The SGR should not be justified on Kabanga alone. Its economics strengthen when it moves a basket of goods: nickel from Kagera, iron and coal from Liganga–Mchuchuma, agricultural bulks from the western highlands, cement and fuel imports, even containers for Burundi and Rwanda. Financing should be structured accordingly. Availability-based contracts guarantee service. Take-or-pay agreements spread risk across users. Tariffs should be set to encourage throughput, not to gouge a single mine. A corridor full of trains is far more bankable than a corridor tied to one ore.
B) Power: predictability over promises. Smelters do not need subsidised slogans; they need clarity. Tanzania can offer this by creating industrial tariff frameworks that spell out prices, adjustments, and penalties for outages. Investors prefer a transparent but firm tariff path to a cheap but unpredictable one. Power Purchase Agreements with clear service-level commitments attract capital at lower cost. Blended finance, sovereign support plus development partners plus private equity, can then flow into grid upgrades and generation expansion without mortgaging ore.
C) Sovereign credibility as the true asset. The global capital market values credibility more than collateral. If Tanzania can demonstrate that its rail and power systems are run transparently, that tariffs are predictable, that contracts are honoured, lenders will come, not because we pledged nickel, but because we built trust.
Governance as credit enhancement
In global finance, money flows towards credibility. Investors want to know not only that assets exist, but that rules are clear and institutions are trustworthy. For Tanzania, this is where governance becomes the true collateral.
If we build a corridor where data is public, tonnage moved by rail, tariffs applied, outages in power supply, financiers will price the risk lower. If we hide information, they assume the worst and charge us more. Transparency, in other words, is a form of currency. It reassures both lenders and citizens that projects are being managed, not mortgaged.
Governance also means discipline in execution. Procurement must be competitive, not captured. Change orders must be contained, not inflated. Regulators must enforce standards consistently, not selectively. When systems function in this way, they themselves become credit enhancements. Investors lend not because ore is pledged, but because institutions perform.
The lesson is stark: collateralisation is a sign of weakness. Governance is a sign of strength. The former pawns tomorrow; the latter builds confidence today.
Counterarguments and responses
The case for collateralisation has vocal champions. It is important to take their arguments seriously, and to answer them.
Argument 1: “Minerals belong to the people; why not use them directly for infrastructure?”
It is true that minerals belong to the people. But the way they serve citizens is through royalties, taxes, jobs, and industries built around them, not by being pawned. Pledging minerals means surrendering control to lenders; managing them means extracting long-term value.
Argument 2: “Collateralisation is faster than negotiating multi-user contracts.”
Speed is deceptive. A collateralised loan may deliver money quickly, but it ties the nation to rigid terms that outlast the project. Multi-user arrangements take time to design, but they build systems that endure. Infrastructure lasts for decades; it should be financed with patience, not haste.
Argument 3: “Without collateral, no lender will trust us.”
This underestimates both Tanzania and lenders. Serious investors prefer diversified, credible revenue streams to volatile commodity pledges. If we can demonstrate stable tariffs, enforceable contracts, and reliable throughput, capital will come, and it will come on better terms than collateralised deals.
What credibility would look like
If Tanzania rejects the shortcut of collateral, what does credibility look like in practice?
A) Corridor steering. Establish a unified body that aligns rail, power, customs, and finance. Break down silos. Publish one roadmap with shared milestones.
B) Multi-user contracts. Secure take-or-pay agreements not only with Kabanga but with agriculture boards, cement companies, fuel importers, and regional partners. Diversity is insurance.
C) Industrial tariff frameworks. Publish tariffs for large users, indexed to inputs, with clear rules for adjustment. Penalise outages, reward uptime. Let investors see the path ahead.
D) Sovereign funds. Channel royalties and taxes into a transparent fund that saves and invests for the long term. Show citizens where the money goes. Show lenders that revenues are ring-fenced.
E) Performance dashboards. Release quarterly data: trains per day, power uptime, tariffs collected, grievances resolved. Visibility itself lowers perceived risk.
These are not abstract reforms. They are practical signals to both citizens and markets that Tanzania manages, rather than mortgages, its resources.
The deeper risk: politics of impatience
Behind the collateral debate lies a deeper challenge: the clash between political impatience and industrial time. Politicians operate on five-year cycles; railways and mines operate on thirty-year horizons. The temptation to announce quick, collateralised deals is strong. They produce visible projects within a single tenure.
But the cost is deferred. When prices fall, when collateral is called, when projects underperform, the bill lands on future governments, and on citizens. The very people who cheered the pledge find themselves paying for its failure.
The courage required here is political. Leaders must resist the urge to show instant results and instead design systems that endure. They must persuade citizens that patience today brings prosperity tomorrow. This is harder than pawning ore, but it is the essence of leadership.
Closing, Pledges or prosperity?
The image remains vivid: a map of Kabanga in one hand, a blueprint of the SGR and JNHPP in the other. The easy path is to tie them together through collateral, to claim that minerals will directly build infrastructure. But easy paths often lead to hard landings.
Collateralisation is seductive because it promises speed and simplicity. But it is fragile, risky, and corrosive to credibility. The alternative is harder: designing multi-user economics, publishing tariff frameworks, enforcing contracts, building governance that investors trust. This path takes longer, but it produces systems that last.
Tanzania must choose. Will Kabanga be remembered as a resource pawned, or as a commodity transformed? Will we pledge it in desperation, or manage it with discipline? The world of finance is watching, but more importantly, Tanzanians are watching. The answer will reveal what kind of nation we aspire to be: one that mortgages its future, or one that builds it.
This strategic management of natural wealth should have been an invaluable input in the new Vision 2060