TANZANIA AS LOGISTICS HUB

April 23rd 2014

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Tanzania aims to become a regional logistics hub

Event

At an investment conference in April, Jakaya Kikwete, the Tanzanian president, announced plans to make Tanzania a regional logistics hub.

Analysis

A key element in the plans is the construction of a new port in Bagamoyo, 75 km north of the commercial capital, Dar es Salaam. The plans include a special economic zone and 65 km of railway to connect the port with the Tanzania-Zambia Railway, a gateway to eastern and southern African markets. Tanzania signed an agreement in 2013 with the Chinese government to finance the US$10bn port, and China Merchant Holdings will execute the project, scheduled to finish in 2017.
A new port would reduce bottlenecks to economic growth and make Tanzania a more attractive investment destination. There are considerable costs and delays at the overwhelmed Dar es Salaam port, and the harbour is shallow, which prevents it from servicing modern mega-transporters. The planned port in Bagamoyo would be able to accommodate modern deepwater ships.
The port would also attract more business from Tanzania's landlocked neighbours in East Africa, making it more competitive in comparison to Kenya. The ports of Mombasa in Kenya and Dar es Salaam, the two gateways to the East African Community (EAC), have long competed for the region's trade. Although Mr Kikwete said that there was is no "commercial arms race" with Kenya, a recent infrastructure co-operation agreement between Tanzania, Burundi and the Democratic Republic of Congo, signed one day after Kenya, Rwanda and Uganda agreed on a similar deal, suggests otherwise.
However, there are several unanswered questions over the port project and it is unclear if the ambitious plans are feasible. The January start date was missed and, although the project is set to be fast-tracked under the government's Big Results Now initiative, a new start date has not been announced. The financing with the Chinese government appears secure, but the government's recent decision to cancel a tender with a different Chinese contractor to construct two new berths at the Dar es Salaam port suggests there are risks to this. The presidential election in 2015 and a possible new constitution will add to the political risk over the next year.

Impact on the forecast

Our growth forecasts are premised on a strong expansion in infrastructure investment and will remain unchanged at present. However, they would be raised marginally if the Bagamoyo port project went ahead in its currently mooted form.