Tuesday, August 12, 2014

The good, bad side of Beijing’s billions in Tanzania


By The Citizen Reporter

Dar es Salaam.  When the World Bank and the International Monetary dilly-dallied upon being approached to finance the $1.3 billion Mtwara-Dar es Salaam 524km gas pipeline, which Tanzania dearly needed to boost  electricity production and end the country’s non-ending power shortage, China came calling with a juicy and tempting offer—and government quickly took it up.

The deal was sealed in September, 2011, ending five years of “let’s-wait-and-see” stance of the Western financiers. It was a deal that shocked the Western lending institutions, considering the 3 per cent interest rate and the time Tanzania was given to repay the loan—33 years.

But, behind the scenes, there were some strings attached. What were they? One, which was considered the most stringent, was that only Chinese companies should bid the construction tender in all project money loaned by Chinese banks.  Any big project financed by China through its financing arm, the state-owned Exim Bank, or as aid, the bid winners are always Chinese.

The tender wasn’t advertised anywhere, contrary to Tanzania’s Procurement Act of 2004, meaning the winner, a China-based contractor, was given the lucrative deal on a silver platter.

Not only that, but also, all the materials required for the construction were not to be purchased in Tanzania; they were procured from China. Though this situation has been hailed as a win-win situation, the biggest winner is definitely China. 

This is because the Chinese bank makes a profit for loaning African countries, and the loans are repaid without delay, while the Chinese firms also get huge business opportunities through non-competitive deals.

But, even if local companies were to compete with Chinese firms, the former would not win, because the latter offered the lowest quotation, according to interviewed local contractors.

At the end, Tanzania will have the biggest gas pipeline it needs to boost power production—though some politicians including Mr Zitto Kabwe have termed the project a white elephant—and Chinese firms will have made huge profits.

Here-below is the Chinese modus operandi, crafted and shaped by Beijing foreign policy of 1990s.

Think about what happened in Congo in late 2008. Africa and the world were stunned by a deal sealed between China and the DR Congo in which the two countries would swap 10 million tonnes of copper ore for US$9 billion loan to construct infrastructure project in the war-torn Central African nation.

The deal signed in Beijing gave the DRC $6bn it needed to fund its infrastructure—about 2,400 miles of road, 2,000 miles of railway, 32 hospitals, 145 health centres and two universities. In return, China got a slice of DRC’s precious natural resources to feed its booming industries—10m tonnes of copper and 400,000 tonnes of cobalt.

At the current world prices for copper and cobalt, the Chinese side would earn a whopping overall profit of about $42bn after all the investment’s been paid—including the $9 billion infrastructure loan.

The financier of the loan is no more than China’s Exim Bank. From the way the deal was designed, it looked like a barter trade that was fair for DRC, but analysts say China took advantage of Congo’s desperate need to access the vast natural resources, mainly minerals.

In the DRC case, if Chinese firm paid 30 per cent corporation tax, the government would have made $13.5 billion—more than the money it loaned the war-torn country.Three years ago, Wikileaks expose US cables that confirmed that though viewed by East African and African leaders as the best partner, China too like Western donors, has strings attached to its generosity.

China’s interest in Africa, wrote the UK’s Guardian newspaper in 2012, is not driven by poverty concerns, but clear foreign policy and commercial objectives. China is presently interested in African politics just like the West.

What China has given East Africa

China has committed about $13 billion in five East African countries between 2001 and 2011 on aid and development projects, according to research by AidData, which reveals the scale of what some have called Beijing’s escalating soft power “charm offensive” to secure political and economic clout on the Continent.

However, the Chinese government releases very little information on its foreign aid activities, which remain state secrets, according to researchers from AidData.

 The data show that Tanzania and Uganda are the leading recipients of development grant, loan and aid from China. However, these data don’t include 2013 and 2014 deals. This year alone, China has brokered major deals in Kenya involving the financing of standard gauge railways, expansion of Mombasa port and construction of Lamu Port.

In Defence of China

Recently, China’s ambassador to Tanzania defended his country’s record in trading with Tanzania during an interview with The Citizen. The ambassador, Dr Lu Youqing, termed Chinese contractors in Tanzania “very competitive globally, which advocate the business concept of  quality and cost efficiency”.

For    instance, the Chinese Ambassador said out of 10,000km of tarmac road built in Tanzania, Chinese contractors built 6000km at the cost of $600,000pkm as opposed to $1million charged by European companies.

In comparison, says Chinese Ambassador, Chinese companies helped Tanzania government to save about $2.5 billion from road construction. Tanzania has recently become one of China’s best favoured destinations in Africa as shown in this newly released data of China’s aid, loan and trade in the continent—with data available show that the country received about $5.07 billion from China as loans, grant and aid between 2001 and 2012.

Tomorrow: How China companies win businesses in Tanzania, East Africa region