snapshots

Tanzania Takes Another Swipe at Chinese Investment

3 MINS READOct 25, 2019 | 20:43 GMT
The Big Picture

Under President John Magufuli, the Tanzanian government has become increasingly heavy-handed in foreign investment projects. This has included attempts to strong-arm companies into contract renegotiations, as evidenced by the government's recent actions against Chinese operations. 

What Happened

Tanzania's ongoing brush with foreign investment under President John Magufuli is encompassing a growing number of Chinese firms, individuals and entities. On Oct. 24, Tanzanian officials arrested four Chinese nationals overseeing efforts to build a canal and road in Dar es Salaam, citing the projects' slow progress. The detained contractors will allegedly continue to work during the day while spending each night at a police station until the governor of Dar es Salaam is satisfied with their progress. According to Tanzanian officials, the arrests were meant to serve as a warning to other foreign contractors in the country, illuminating Tanzania's increasingly poor investment and business climate under Magufuli's nationalist agenda.

Why It Matters

Since Magufuli took office in 2015, his attempts to increase Tanzania's share of revenue and control have spooked many Western investors. This has, in turn, prompted Magufuli to rely heavily on Chinese investment under the Belt and Road Initiative. But Dar es Salaam's relationship with Beijing has also recently become strained, as Chinese operations in the country increasingly find themselves tangled up with Magufli's nationalist agenda. 

In July, Tanzania suspended the construction of the Chinese-backed, $10 billion Bagamoyo port due to what Magufuli described as the project's "exploitative" terms. The dispute recently boiled over when Tanzania issued a final ultimatum to China Merchants Holding International, the lead investor in the project, to accept its conditions or leave the project entirely. The government's requested changes to the Bagamoyo deal, however — which includes allowing Tanzania to build other ports that could be competitors down the road — risk making the project unprofitable for Beijing. 

Tanzania's detention of four Chinese contractors highlights the country's dimming foreign investment prospects under President John Magufuli's nationalist agenda.

Such strong-handed tactics against Chinese individuals and companies in the country have yet to lead to a higher-level political spat between Beijing and Dar es Salaam. But as China becomes more stringent in its foreign investment strategy and begins to more thoroughly vet the profitability of opportunities overseas, Tanzania's aggressive strategy under Magufuli may ultimately deter Chinese investment, which is currently funding the cash-strapped country's infrastructure and natural resource sectors. 

Background

Magufuli's 2015 campaign focused on tackling corruption and boosting Tanzania's economy. He argued that many of the contracts and investment terms signed by previous governments were too generous to foreign investors and take advantage of the country. But while this rhetoric has earned the president political support, the implementation of Magufli's nationalist and state-interventionist policies has become increasingly aggressive — and risky.

Magufli's administration has ruffled the feathers of a number of foreign entities, including Chinese, European and African companies. This has been a significant change for Tanzania, which has historically been seen as a politically stable country with overall friendly foreign relations. 

In 2017, Tanzania attempted to hit United Kingdom-based gold mining company Acacia Gold with a $190 billion fine over unpaid taxes and other penalties, beginning a long-running dispute that was finally settled Oct. 20. In exchange for a smaller $300 million fine, the government was able to walk away with greater royalties and a 16 percent stake in three of Acacia Gold's projects in Tanzania. Beyond harsh demands for foreign investment, Magufuli's administration also recently blocked the release of an allegedly negative economic report from the International Monetary Fund and has increasingly cracked down on perceived threats such as opposition groups, nongovernmental organizations and the media — mirroring many of the authoritarian political tactics seen in other African countries. 

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