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September 23, 2011 12:33 pmby David Keohane
Tanzania is the latest African country to benefit from Chinese largesse – Reuters is reporting it has signed a $3bn deal with Chinese mining company Sichuan Hongda (600331:SHH) to mine coal and iron-ore and agreed a $1bn loan deal with the Chinese government to build a desperately-needed gas pipeline.
Sichuan Hongda's investment involves the joint venture construction of the Mchuchuma integrated coal-mine / thermal power station and an iron ore mine in the Liganga region in southern Tanzania.
A new company, Tanzania China International Mineral Resources (TCMR), has been created to build the mines with the Chinese mining company taking a 80 per cent stake.
The remainder of the company will be owned by Tanzania's state-run National Development Corporation; although there are reports that NDC will be able to increase its stake to 49 per cent once Sichuan Hongda has recovered its original investment.
Tanzania has suggested that the Liganga area is rich in those minerals which China craves, such as iron ore and titanium – recent government estimates have put the figures at between 200m and 1.2bn tonnes.
Mining currently accounts for about two per cent of Tanzania's GDP but Tanzania is hopeful that will increase to 10 per cent by 2025.
The reasons for the Chinese investments are clear and in keeping with China's aggressive push into Africa – Chinese-African trade, increasingly led by private investors, grew from $11bn in 2000 to to $129bn in 2010 with foreign direct investment (difficult to calculate but the Chinese Ministry of Commerce claimed a stock of $13bn in 2010) increasing rapidly as well, according to Renaissance Capital.
The Russian investment bank also notes that mining investments compose the largest portion of Chinese FDI into Africa (29 per cent) and although Africa has a trade surplus with its Asian investor, direct loans between China and African countries often come with conditions that include guaranteeing Chinese companies contractor rights and preferential access.
However, considering Tanzania's chronic power-shortages, the attraction of their loan agreement with the Chinese government is equally clear. The loan will finance a gas processing facility and a gas pipeline from Mtwara, in the south-east of the country, to the capital Dar es Salaam.
That said, China's relationship with Africa is starting to qualitatively change as increasing numbers of Chinese manufacturers choose to locate there.
China's population is aging and supply of low-wage labour may have peaked while economic success and inflation have undermined its competitiveness. That has lead to suggestions, most notably from World Bank president Robert Zoellick, that China, as it moves its labour-force up the value ladder, should start moving the lower-paid manufacturing industry it dominates to job-poor Africa.
But, as Zoellick admitted, actual implementation of the idea might be a few years away – "It's still just a spark in the eye but sometimes that is how you make things happen."
Tags: China-Africa, FDI
Posted in China, Tanzania | Permalink
Tanzania is the latest African country to benefit from Chinese largesse – Reuters is reporting it has signed a $3bn deal with Chinese mining company Sichuan Hongda (600331:SHH) to mine coal and iron-ore and agreed a $1bn loan deal with the Chinese government to build a desperately-needed gas pipeline.
Sichuan Hongda's investment involves the joint venture construction of the Mchuchuma integrated coal-mine / thermal power station and an iron ore mine in the Liganga region in southern Tanzania.
A new company, Tanzania China International Mineral Resources (TCMR), has been created to build the mines with the Chinese mining company taking a 80 per cent stake.
The remainder of the company will be owned by Tanzania's state-run National Development Corporation; although there are reports that NDC will be able to increase its stake to 49 per cent once Sichuan Hongda has recovered its original investment.
Tanzania has suggested that the Liganga area is rich in those minerals which China craves, such as iron ore and titanium – recent government estimates have put the figures at between 200m and 1.2bn tonnes.
Mining currently accounts for about two per cent of Tanzania's GDP but Tanzania is hopeful that will increase to 10 per cent by 2025.
The reasons for the Chinese investments are clear and in keeping with China's aggressive push into Africa – Chinese-African trade, increasingly led by private investors, grew from $11bn in 2000 to to $129bn in 2010 with foreign direct investment (difficult to calculate but the Chinese Ministry of Commerce claimed a stock of $13bn in 2010) increasing rapidly as well, according to Renaissance Capital.
The Russian investment bank also notes that mining investments compose the largest portion of Chinese FDI into Africa (29 per cent) and although Africa has a trade surplus with its Asian investor, direct loans between China and African countries often come with conditions that include guaranteeing Chinese companies contractor rights and preferential access.
However, considering Tanzania's chronic power-shortages, the attraction of their loan agreement with the Chinese government is equally clear. The loan will finance a gas processing facility and a gas pipeline from Mtwara, in the south-east of the country, to the capital Dar es Salaam.
That said, China's relationship with Africa is starting to qualitatively change as increasing numbers of Chinese manufacturers choose to locate there.
China's population is aging and supply of low-wage labour may have peaked while economic success and inflation have undermined its competitiveness. That has lead to suggestions, most notably from World Bank president Robert Zoellick, that China, as it moves its labour-force up the value ladder, should start moving the lower-paid manufacturing industry it dominates to job-poor Africa.
But, as Zoellick admitted, actual implementation of the idea might be a few years away – "It's still just a spark in the eye but sometimes that is how you make things happen."
Tags: China-Africa, FDI
Posted in China, Tanzania | Permalink