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Tanzania: Why Bagamoyo Port deal with China is an uphill battle

Eric Olander
By Eric Olander

Managing Editor, The China Africa Project

Posted on Thursday, 1 July 2021 19:00

Tanzania's President Samia Suluhu Hassan attends the funeral service of former President John Magufuli in his home town of Chato, Tanzania Friday, 26 March 2021.(AP Photo)

Tanzanian President Samia Suluhu Hassan took everyone by surprise late last week when she announced that long-stalled talks with China about expanding the port of Bagamoyo are being resumed.

Negotiations over a multi-billion dollar port deal with China Merchant Holdings (CMH) famously came to an abrupt end in 2019 after late President John Magufuli called the Chinese maritime conglomerate’s terms “exploitative and awkward.”

Among the contractual issues that Magufuli objected to included a 99-year lease, the demand for tax holidays and the right of the government to develop other ports if it so deems.

Magufuli then presented a counteroffer to CMH that all but ended negotiations between the sides. Until now apparently. “Regarding the Bagamoyo Port project, let me give you the good news that we have started talks to revive the whole project. We are going to start talks with the investors that came for the project with the aim of opening it for the benefit of our nation,” President Hassan told members of the Tanzania National Business Council on Saturday.

In a nod to her tough-talking predecessor, President Hassan added that “national interest will be of priority” during the renewed talks with China Merchant Holdings.

But it’s not entirely clear how much leverage she’ll have in those negotiations, given how much the world has changed since 2013 when the Bagamoyo port discussions first began and even since 2019 when they last broke down.

That said, Tanzania’s ties with China have been steadily improving. President Hassan’s remarks came just five days after she spoke with Chinese President Xi Jinping and six months after Foreign Minister Wang Yi visited Tanzania during his annual Africa tour.

Three reasons this could be an uphill battle

No money

The days of China giving out massive multibillion loans to build large-scale infrastructure projects in Africa seem to be coming to an end. Bilateral development financing from Chinese state banks has sharply fallen in recent years and shows no signs of rebounding soon. Therefore, coming up with the money to build the port could potentially be a significant challenge.

Two options negotiators from both sides will likely consider:

  1. Scaling down the size of the project and relying less on international financing and more on domestic capital, as Tanzania is doing with its new Standard Gauge Railway;
  2. Looking for new partners beyond the original China Merchants and Oman’s State General Reserve Fund. If they manage to attract other investors like sovereign wealth funds or include major port investors like DP World from the UAE, it could spread the risk.

Too many ports?

The logic of building yet another port on Africa’s shore may not pass the feasibility test when planners consider the massive port expansion underway in Djibouti, the DP World-funded port development in Somaliland, the port of Mombasa, the rapidly expanding port in Lamu in addition to the port of Dar es Salaam in Tanzania and the port of Durban in the far south.

Granted, there’s a lot of distance between these ports, but still considerable excess capacity in a region that will face severe economic growth constraints in the decade ahead.

China’s moved on

China-Africa trade has diminished in importance for Beijing. China’s now diversifying its raw material supply chains so it relies less on any single region and instead spreads commodity purchases across the Belt and Road network.

Although China-Africa trade last year was a relatively healthy $187bn, all things considered, Africa nonetheless remains China’s smallest regional trade partner when measured against the Middle East ($240bn), Americas ($300bn), and ASEAN ($1+trn).

The feasibility analysis for the Bagamoyo port project will likely be more rigorous today than for earlier iterations of the project. That’s not to say it won’t get approved, it’s just going to be a lot more difficult in the current environment.

There are two variables, however, that weigh in President Hassan’s favour as she embarks on these talks with the Chinese government and China Merchants Holdings.

First, Beijing prizes connectivity. The fact that Tanzania is aggressively positioning itself as the transportation and logistics hub of East Africa with new road and rail networks is something that BRI planners all value. Secondly, in this new era where the United States and China’s various other rivals now want to compete head-on with Beijing to build infrastructure, President Xi may want to keep this one in his column and prevent it from becoming a showcase for the G7’s B3W.

This remains highly speculative at this point but it’s important to consider the broader geopolitical framework within which President Hassan is operating, compared to the more local considerations that defined John Magufuli’s approach.

This article was first published in The China-Africa Project.

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