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Tanzania Secures Promises, Not Cash, From China

4 MINS READOct 29, 2014 | 09:07 GMT
Tanzania Development Deals Could Be Less Meaningful than They Appear
(Daniel Hayduk/AFP/Getty Images)
With the port in the background, workers build up the Bus Rapid Transit infrastructure in downtown Dar es Salaam on April 27.
Summary

To realize its quest to become East Africa's economic and financial hub, Tanzania is unafraid to reach out. During a six-day state visit to China, Tanzanian President Jakaya Kikwete oversaw the signing of six cooperation agreements, worth approximately $2.1 billion, on public infrastructure projects. He also signed a deal to work with a Chinese and an Omani construction firm to build up the port of Bagamoyo. Although the deals appear significant on the surface, financial constraints that were not addressed in Beijing will hamper Tanzania's transformation into a regional business hub. Realistically, these various agreements are more likely intended to alleviate localized supply chain backlogs in the Dar es Salaam region, as opposed to making Tanzania's dream of becoming a commercial nexus a reality. 

In the course of Kikwete's visit to China, two significant sets of agreements were struck. On Oct. 24, the Tanzanians and Chinese signed six memorandums of understanding relating to the construction of residential, commercial and industrial properties in the Dar es Salaam metro area, as well as a major road project. On Oct. 26, the Tanzanians signed a set of agreements with Chinese and Omani contractors, planning for the construction of a special economic zone to begin mid-2015, alongside preliminary construction of a port and associated road and rail connector infrastructure.

The Tanzanian government said the planned developments will transform the country into a regional financial center. That ambition will likely remain out of reach, however, so long as financial commitment to the projects remains cloudy. The Tanzanian government reported that it is not financing the projects agreed upon in China, and the memorandums of understanding do not stipulate a clear upfront Chinese financial commitment.

Dar es Salaam, Tanzania's main port city and gateway to the Indian Ocean, is extremely congested. Economic growth and political developments in the East African country over the past several years have contributed to an influx of residents. Dodoma is the country's legislative capital, but major businesses and the executive branch of government reside in Dar es Salaam. Anecdotal information indicates that middle-class Tanzanians working in downtown Dar es Salaam must leave their homes well before dawn, commuting for up to two hours to be at their desks by start of business. This congestion coupled with space constraints has limited any additional expansion of the Dar es Salaam port, playing a significant role in the government's decision to build a new port with Chinese support at Bagamoyo, just north of Dar es Salaam. It is hoped that the construction of new industrial, commercial and residential areas will alleviate the congestion affecting urban Tanzania.

The proposed development projects agreed upon between Tanzania and China will take some time to implement. Although China's commitment to financing the deals agreed upon in Beijing is vague, it is likely the projects will proceed as a result of organic financial growth. In other words, with Tanzania's approval, China could proceed with construction as Tanzanians confirm the demand for commercial, industrial or residential property, as well as the ability to pay the necessary rent.

Transforming Tanzania into a regional financial center would require a significant financial commitment from the Tanzanian government, which would have to invest resources domestically as well as in the foreign private sector. The Tanzanian government lacks the ability to mobilize financial resources that would enable it to compete with the eastern and southern African financial centers of Nairobi or Johannesburg. Dar es Salaam could eventually acquire the necessary fiscal resources, but probably not until Tanzania's startup natural gas sector becomes meaningful and available for investment purposes rather than domestic political priorities. This process could take several years.

Surface Transport Infrastructure in the Central Corridor

Surface Transport Infrastructure in the Central Corridor

Furthermore, making Tanzania a regional economic hub capable of competing with Kenya and Ethiopia (and other countries aiming to take on the role) would require more infrastructure than the government discussed building during Kikwete's visit to China. Tanzania and its Central Corridor road and rail infrastructure projects — meant to link the coastal region to the interior of Central Africa — are competing against a Kenyan corridor linking the coastal city of Mombasa through Kenya's capital of Nairobi to Uganda, Rwanda and parts of the eastern Congo. Chinese funding is already committed to Kenya's Northern Corridor, the traditional gateway from the Indian Ocean to the interior of Central Africa, but a similar financial commitment has not been made to Tanzania's corridor.

Alleviating congestion in Dar es Salaam's traffic and supply chain will benefit Tanzania and could win political points for Kikwete among frustrated commuters and traders — a helpful boon for a politician going into his final year in office. However, unclear financial commitments to infrastructure in the Tanzanian capital and no additional commitments to East Africa's region-oriented road and rail infrastructure mean that the agreements reached in Beijing do not set Tanzania's projects apart from developments elsewhere in East Africa. 

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