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VOL.7 August 2015
Tracking Growth
Chinese companies' billion-dollar deals to build railways in Tanzania could be a template for future Sino-African cooperation
By Nuša Tuki

Tanzania plans to spend $14.2 bln on new railway networks in the next five years

Tanzania's relations with China date back to the 1960s, when Chinese construction firms developed what has come to be known as China's flagship project in Africa, the Tanzania-Zambia Railway. The aim was to give Zambia an alternative export channel to the apartheid-stricken South African route, thus easing commodity export as well as improving connectivity for Zambians and Tanzanians.

In May, the Tanzanian authorities announced a consortium of Chinese railway companies, led by China Railway Materials (CRM), had been awarded a $7.46-billion contract to build a 2,561- km standard-gauge railway connecting Dar es Salaam Port with Tanzania's landlocked neighbors.

In addition, the China Railway No.2 Engineering Group has been awarded a contract to build a 1,000-km railway linking coal and iron ore mine projects in the south to the Port of Mtwara, an area where big offshore natural gas reserves have been discovered. The estimated cost is minimum $1.4 billion. Incidentally, the coal and iron ore mine projects are also being developed by a Chinese group. Previously, the China National Petroleum Corp. built a 500-km gas pipeline linking Mtwara and Dar es Salaam.

These developments can be viewed as part of a broader trans-regional East African transport and energy network involving Chinese partners, the most prominent project being the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) project.

Such developments have significant implications for East Africa, not only in terms of intra-regional travel and trade, but also intra-regional competition, which can speed up economic growth.

Project details

Tanzanian Transport Minister Samuel Sitta told parliament in May that the CRM-led consortium would build a standard-gauge railway from Dar es Salaam to the west borders. Although it was not clear which routes the railway would cover, the principal route for development is the central corridor between Dar es Salaam Port and the future deep-water Bagamoyo Port, whose main investor is Chinese company China Merchants Holdings International.

The railway would also cover the land bridge between Lake Tanganyika and Lake Victoria, stretching over the ports of Musoma, Mwanza and Kigoma into neighboring Uganda, Rwanda and Burundi. Ten percent of the $9-billion project would be raised by the CRM, with the remainder coming from commercial bank loans, according to financial adviser Rothschild.

Regional implications

This project comes at a time when Tanzania, as well as its neighbors Kenya and Mozambique, are aspiring to the title of regional transportation powerhouse. In both Kenya and Mozambique, infrastructure is developing rapidly, with Kenya being the starting point for the LAPSSET project.

Mozambique's strength is the Maputo Development Corridor connecting capital Maputo with South Africa's Gauteng and Mpumalanga provinces, as well as providing Swaziland with an alternative to South Africa's Port of Durban. The project boasts the title of the "most successful regional interconnection initiative in Sub-Saharan Africa."

It therefore came as no surprise when Tanzania announced in March that it planned to spend $14.2 billion on new railway networks in the next five years, financed by commercial loans. Tanzania's ambitions to become the regional transport hub of East Africa, conditioned by the speed of its construction capability, will not only offer competition to Kenya, but will also give Tanzania an opportunity to sign deals that would capture the mineral exports market. In addition to Tanzania, this transport infrastructure would serve many of the landlocked economies in central Africa.

Kenya's recent discovery of oil and Tanzania's discovery of gas reserves have increased their bankability. It is said that over the next two years, reserves of up to 2 trillion cubic feet of natural gas will be established in Tanzania. This will, in turn, contribute to Tanzania's growth. It is set to become one of the fastest growing economies in the world, with transport infrastructure and power projects worth $19 billion in the pipeline.

Tanzania is also set to upgrade 10 airports in the present financial year to keep pace with passenger and cargo traffic, which is growing at a rate of 20 percent a year. According to the Tanzania Airports Authority, 5 million passengers and 28,000 tons of cargo passed through its airports in 2013. This accounts for the importance Tanzania has attached to developing its airports in order to become East Africa's regional transport hub.

As inter-regional competitiveness increases, much-needed economic benefits, such as GDP boost and ease of trade, will follow. Thus, in addition to connecting people and places, such projects have the potential to stimulate economic growth.

Wider spin-offs

The realization of the strategic importance of East Africa in transport infrastructure has, over the past couple of years, seen investments pouring in, both from China and the domestic private and public sectors.

Diversifying transport routes and increasing transport networks will ensue in regional interconnectivity as well as regional competitiveness, contributing to East Africa's much-needed economic and social development. This project, combined with China's commitment to assist Africa in developing the three major networks of railway, road and regional aviation, can be regarded as an example of what future Sino-African developments on the continent may look like.

(The writer is a research analyst at the Center for Chinese Studies [CCS] Stellenbosch University, Source: CCS)

 

 

 

 

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