The purpose of this research paper is to deeply analyze the effects of the Chinese investments on all the aspects of life in Tanzania from the economic perspective. In order to maintain the research process in the most efficient way, additional factors like political, social, technological, environmental and legal should be observed and analyzed. In other words, the basics of PESTEL macro-environmental analysis (Oxford University Press, 2007) will be applied to make the specific conclusions and evaluate the influence of Chinese participation in the development of Tanzania as a country on the African continent. The previously conducted superficial research identifying the economic effects of Chinese investments in Tanzania will be taken as the background for the given study.
Political factors. Obstacles for investing
“Most investments in Africa are not African in terms of origin and ownership”, says The Citizen (2011). The boom of foreign investments as an economic happening started in the last decade of the previous century, namely at the beginning of 90s. Before this the whole African continent was not supposed to be an attractive place for foreign investments. The reasons for the change of the situation were different – from economically reasonable to those based on common beliefs. The Economist (2000) reports that the main obstacles for the inflow of investments in the African countries were inconvenient financial terms, which were based on large portfolios and short-term loans, and the risk associated with the internal processes within the country of investment. However, this does not prevented from the increase in the total investment in Tanzania by more than 200 million US dollars within the period of 1993-1995.
Tanzania investment perspective
While encouraging the inflow of foreign capital, the Tanzanian government has simplified many procedures, which promoted more positive investment climate. The government also made the local and foreign investors equal in rights, establishing the same tax rates and promoting freedom of business activity to certain extent (Index of Economic Freedom, 2011). Corruption rates, bureaucracy, and underdevelopment of hard and soft infrastructure contribute to the factors of unattractiveness for the foreign capital. On the other hand, many favourable conditions are created to benefit the investors enter the market of Tanzania and establish own business.
If to speak about the preferences in the type of investors and investments in Tanzania, one should mark out that the preferable profile of the financials inflows in the country is the long-term type of investment for major investments projects, Reuters Africa (2011) concludes. It becomes evident that China is the most welcomed investor in Tanzania because among the numerous projects and company launches in the local territory, there is a list of huge enterprises mostly involved in mining and natural resource extraction, which are the permanent investors, tax payers, and the integral parts of the economic and social life in the country. The resource potential of Tanzania allows keeping such investors even with the tightening of internal economic situation in the country.
China investor perspectives
At the moment, China is the most influential investor in the territory of Tanzania and the whole Sub-Saharan Africa. According to the Economist (2011a), out of 316 billion US dollars in non-bond transactions, China invests one seventh of money into Sub-Saharan region, and this indicator is higher than for the investment shares from Europe, United States and Australia. Further, I explain what perspectives the Chinese businesses and the Chinese government have found in Tanzania and the neighboring countries.
Local investment relationships
With the development of trade and commercial relationships between China and Tanzania, different types of exchanges and interventions started to take place. However, the Chinese side is the one to initiate the expansions, which seemed to be rather friendly at the beginning of cooperation between the countries. The Economist (2011b) points out that previously the Chinese people were welcomed in the country until they started implementing own order. This means that usually the newcomers from China who are settled in Tanzania are not only the individuals taking part in the social life of the country – there are also the entrepreneurs seeking for the ways to make money outside their native country. This leads to the emergence of different businesses and entrepreneurial activities of Chinese origin, which later can accidentally or purposefully ruin the market, bypass the competition, and turn out to be harmful for the surrounding society. According to Economist (2011b), Chinese are not allowed to conduct any trade activity in Dar es Salaam, the main commercial city of the country. The reasons for this are obvious. At first, the policy of protectionism mentioned in the previous research allows the Chinese population in Africa launching and operating the businesses while obtaining support from the Chinese government. It may not concern individual entrepreneurs who maintain their business to make a living but it is surely the case for the bigger companies, which use the financial and technological dominance of the motherland to succeed abroad. All investors are identified and registered through the governmental bodies in Tanzania and also gain some sort of protectionism for the local government as well. Special codes and regulations are established to control the development of industries and the rights of the investor business. What does not fall under these regulations is either prohibited or illegal. At second, the level of corruption in the Chinese businesses all around the world is said to be significantly high (The Economist, 2011b). Being used to bribery, the managers of the Chinese firms in Tanzania can take an advantage of this non-ethical technique to get permissions, finalize projects and actually earn money with impunity. Finally, The Economist (2011b) suggests that Tanzanians appreciate and welcome Chinese as investors but not as businessmen, traders or entrepreneurs in the territory of the country.
The economic effect of the aforementioned phenomenon is disclosed by the situation in the markets where Chinese gained the most of the market share. Not only Tanzania reports the drastic changes from the Chinese economic expansion: “Soweto market in Lusaka halved the cost of chicken. Cabbage prices dropped by 65%”, The Economist (2011b) writes. These are the evident indications of the Chinese intervention into the African markets and the attempt to establish the Chinese dominance in this region as well as they have done in many other parts of the world. However, the current wealth of the Chinese nation is not projected on Tanzania in any case – Chinese products characterized by low price and low quality are conquering the Tanzanian markets because of the absence of similar alternatives. The prices for food and commodities artificially maintained at their lowest level do not reflect the real economic situation in the country but only distort it. This leads to the bankruptcies of the local businesses displacing them from the market, changes and simplifications of the offers, and bringing dissatisfaction to the customers as a result. One of the possible results is the reduced customer potential that later negatively influences the turnover of the financial flows in the country concentrating them in the regions with the highest industrial and infrastructural development. People lose their jobs because the businesses stop existing, and while the Chinese expansion in the market reports benefits for a certain social group of population, other groups can economically degrade. On the example of price reductions in the agricultural sphere, one can notice that cheaper products become more affordable for the majority of population but the agricultural sector gets into decay. And it is a known fact that 75 percent of population in Tanzania are directly involved in agriculture or conduct some sort of business activity working with farmers in the rural areas (Kinda & Loening, 2010, p. 174). The final suggestion to consider in this type of interaction between Chinese and local sellers is the quality of products. Moderate price is usually associated with lower quality so no one can really get the guarantee that the products purchased from Chinese really meet all the requirements and preferences of the customer. Besides, income-driven Chinese are not probably that sensitive to the Tanzanian customers as the local producers and sellers are – the inhabitants of the same country will always have warmer relationships with each other compared to the relationships on the international and intercultural basis.
Being concentrated on the foreign investment capital, the Tanzanian government paid little attention to the development of local investors. There are companies that prove to show good results in their business sectors but lack substantial support from the government. Besides, they are more interested in national economy and would ensure the profitability of their businesses (Lu and Marco, 2010, p. 102).
Social factors, as seen above, also have a considerable effect on the economy of the country. The trust to the Chinese nation reduces every day. Chinese have experienced many fails and collapses while establishing businesses and developing infrastructure. What they create and implement is usually not long-lasting and means that the primary purpose of their activity is not the real aid to the country and its population. If the whole Tanzanian population recognizes that the Chinese expansion pursues lucrative goals, the trust will be completely gone. Therefore, an obvious dilemma would arise: should the nation get along with it for the reason of material benefits, which Chinese bring to the country, or should the nation oppress the concealed expansion? Both variants would be economically non-reasonable because losing the main foreign investor will surely slow down the rate of country’s development, while the attempt to control business and interpersonal relations between Tanzanians and Chinese would also be costly enough from the political and legal point of view.
Products. Reducing the hunger has always been an important issue within the social policy in Tanzania. In 2004, around three million people required food aid (Index of Economic Freedom, 2005). At that moment, Tanzania was rated slightly lower than the 100th position in the Index of Economic Freedom ratng, and the country holds up this position until now. Cheaper Chinese products can help the needy population unless the trade maintained by Chinese will continue being prohibited in certain areas of the country. Cheaper food and other products are argued to have lower quality but they seem to be the best offer in the market combining affordability and saturation functions.
Labour market. The laws and codes existing in the society in terms of labour are not up-to-date and efficient enough to provide reasonable regulation for all types of communities and social strata. The method of non-salary cost of employment reported by Index of Economic Freedom (2011) still exists, which provides the evidence that the economic system is not as unified to establish and introduce the country-wide monetary measurements and financial terms. Chinese investments can not be certainly much helpful in improving the situation because the Chinese employers can adapt themselves to such type of system and even benefit from it. Besides, much depends on the type of business and its sphere for that different types of activity suggest different outcomes, which are consequently the basis of treating employees. Therefore, the economic effect on the labour market is provided by the country’s regulative bodies and the Chinese businesses only adapt to it.
Knowledge. With the investments, the foreign countries usually bring professional personnel, technological know-how, and the whole business approach. With the Chinese economic expansion in different aspects of Tanzanian life, the process of skills and knowledge exchange began. The foreign direct investments are observed by The Citizen (2011) as an indisputable possibility to bring up specialists and other types of qualified personnel from the local population. Working abreast with Chinese, the local population gets involved in all types of activities, which they later can conduct in the area with similar level of success. Strong high education has always been a privilege of developed countries, and namely the designing of a better environment for school improvement is the step toward the efficient usage of investments. Chinese can teach the population many things by providing educational programs for them or establishing trainings at production sites or anywhere else. The local people working now for the Chinese enterprise – and there are lots of them – not only help to decrease the statistics of official unemployment in the country but also gain useful experience, which is not accessible to the population of many other countries. China, being one of the world’s most powerful and technologically advanced countries, spends heavily on research and development and introducing innovations as the world leader in a series of spheres. The knowledge and experience that China brings to Tanzania cannot be underestimated. Further, the Tanzanians can use the acquired skills in managing own businesses and enterprises, producing goods or enhancing services in the country. With the growth in the number of local specialists in the country, Chinese enterprises would need less work force from abroad, and this will not only preserve the amounts of migrating national minorities but will also provide more jobs for the Tanzanian population. As a consequence, with the faster speed of recruitment processes for the newly established businesses, the emerging companies could set up their activity quicker and make economic contributions to the country in a faster pace. The increase of professional work force may also reduce the unemployment statistics in the rural areas by balancing the labour force and establishing free working places for the previously unemployed. The decrease in unemployment in Tanzania will witness about the positive economic processes, stimulate trade and business relationships, and provide quicker movement of goods in the country.
Dependancy on Chinese investments
Technological factors. In 2011, the plan of economic growth of Tanzania is based on the main following positions: improvement of the infrastructure, establishment of partnerships in the public-private spheres, and fighting the inflation (“Tanzania”, 2011). This action plan explains not only the concerns of the Tanzanian government but also witnesses about its dependency on the foreign capital brought to the country by one of the leading investors in the region – China.
Infrastructure. The infrastructure and one of its most considerably aspects – road construction – is one of the main issues mentioned at the roundtable summit on March 7, 2011. Being a strategic concern of the country, the transport infrastructure in Tanzania is to certain extent dependent on the Chinese investments in this field. This is a demonstrable example that Tanzania gets used to the financial and economical aid from the side of China and includes the prospects of intercultural cooperation in the future plans for the country’s development. Life in Tanzania in many aspects can now hardly ever be imagined without the influence of Chinese foreign capital. As outlined by Reuters Africa (2011), 10 million dollars annually is the price for the construction of the new roads and modernization of the old ones. The benefits of such renovations are based mainly around the faster economic growth. The country leaders identify the low level of infrastructural development as one of the main obstacles of overall business activity in Tanzania. The private sector is supposed to be the primary investor in the modernization of infrastructure. The question is whether the private entrepreneurs are ready to contribute to its development. New roads and other types of communication in the country will stimulate businesses and allow for the deeper integration and better coverage with products and services. However, achieving this means investing in advance, and taking into consideration the sums needed to launch such projects, it is doubtful that the solution on a local country basis can be found. This is another reason that pushes the Tanzanian government to encourage the investments and favour the investment climate.
In addition, the privatization issue is a relevant position in the list of reforms and reorientation of the country meeting the market requirements. This reorientation is said to be achieved by encouraging the growth of the private sector, which, in turn, happens to be the mover of the infrastructure improvements. In other words, Chinese enterprises can invest in infrastructure non-directly – now they are offered an option to establish themselves in the private sector, the funds from which would support the development of rail and road construction.
Power supply. Another deficiency that experience most of the local population is the insufficient power supply. The Citizen (2011) though discloses this not only as a problem but as an opportunity as well. With only 15 percent of country being electrified, the potential of investment in this field seems to be huge. Tanzanians would gladly accept the idea of electrification and the improvement of the power supply. This sphere relates to the one of the numerous in the country, which will be supported by the prevailing number of population, that’s why The Citizen (2011) indicates it as a highly profitable business. However, the real life examples show that the main investor in Tanzania, China, has done not so much to develop the potential of the power supply industry and continues investing in the projects, which have more sense and potential namely for the development of China.
Mining. Now the Tanzanian government found an additional financial source within its internal policies. For that natural resources are much valued by the foreign investors and the new explorations still proceed, the taxes in the mining industries have been increased. With the increase of taxes and relevant power crisis, Tanzania may also open more sites for the extraction of natural resources, which will bring quick income to the country. Now the Tanzanian government is focused on the search for foreign investors with the interest in energy and mining (“Tanzania”, 2011). Here another economic effect of Chinese investing becomes clear: after the Tanzanian government has tried the real working mechanism of foreign investments and their impact on the economy of the country, more and more ideas are designed not only to sustain the interest in investments but also to skyrocket it. I suppose the government would not stick to a single investor or the set of several investors indicating that the country and its resources are open for multiple nations. It proves to be a flexible decision but it may not benefit the already existing investors who already established the business and operations in the country and can call such actions non-consequent in the relation to them and external economic policy of the country. Therefore, an extensive attraction of new investors or the shift to them from the already established ones may not be a reasonable strategic decision and show the country not in the best light.
Urbanization. According to the results of roundtable summit in Dar es Salaam (“Tanzania”, 2011), the issue of urbanization is also among the priorities of the Tanzanian government. Both rural and urban zones will be subjected to urbanization by the means of their connection and re-establishing economical and ecological principles around them. Urbanization of the rural zones is a necessary process in terms of the infrastructure development but it is not proved that the urbanization will increase the productivity of villages and enhance their way of life. Anyway, many changes and issues will come up with the development of this sphere and the role of Chinese investments in this process is indisputable. Chinese could be virtually called the first movers in many spheres of life in Tanzania, and infrastructure is one of the main concerns of the Chinese government, which benefits the local population in the first place.
The overall impact of infrastructure development and urbanization can allow for the emergence of stable traffic, appearance of the commute phenomenon, improvement in the oil and automotive industries. The aggregate of these spheres could be the trigger for the further enhancements and tightening of the connections with the neighbouring countries. Neighbouring states could potentially participate in the business activity in Tanzania and bring profit to the country.
It is known that any violations and shifts in natural resources cause misbalances in nature worsening the ecological situation of the environment. With the development of the aforementioned industrial utilities and industries themselves, the risk of natural disasters grows as well. All sorts of urbanization are harmfully reflected on the surrounding nature leading to deforestation, extinction of species, and different types of pollution. With the improvement of the infrastructure, the ecosystems suffer. Drainage, changes in soil structure, and frequent thunderstorms are among the standard consequences of anthropological influence. These processes are inevitable as the industry grows and develops in the country. Yet there is not much relevant information about the danger to the ecology of Tanzania but the activities promoted by the Chinese, especially those in mining, already contribute to nature in a negative way. There is no an action plan for how Chinese would restore the nature from the harmful effects made by the construction of production and mining sites. But how does it refer to the economic impact in Tanzania? The government of the country now does not consider the industrial impact on the environment when attracting foreign investments. The terms and conditions designed for the launch of the business with foreign investments does not include any obvious contribution to the nature. The depletion of natural resources and other inevitable processes will introduce the new series of problems at the governmental scale and make most of the investors leave for that the investment climate and conditions of life would not be so favourable. In order to change the ecological situation, the government would need additional financial resources, which would not be so accessible due to the decline in inflows.
Trade barriers and privatization. Not so many years have passed after the trade barriers in Tanzania were removed. Index of Economic Freedom (2011) identifies it as a negative occurrence for the country, and The Economist Intelligent Unit Limited (2007) talks about this as a disputable issue that remains open for a certain number of years already. The removal of trade barriers was supposed to benefit the neighbouring countries and maintain higher turnover of goods between them and Tanzania. It was also identified that the issue of open trade barriers would seem attractive for the investors, namely China. China is known to invest heavily in most of the African countries so the free access and movement of products was supposed to improve the trade and investor relationships at once.
The issue of privatization is being discussed by the most authoritative writers observing the situation in the Tanzanian community. As it turns out, the development of the so-called public-private programs also known as PPP are aimed at foreign investors and their businesses rather than the local ones. The words from The Economist Intelligent Unit Limited (2007) prove this suggestion: “The government is really committed to privatisation and over whether it has started to adopt a more aggressive approach to attracting foreign investors.” According to my opinion, the aim of privatization is to transfer the underfinanced governmental assets into the hands of companies with working foreign capitals. This sounds like a prospective solution for the poorly utilized enterprises and real estate but gives a hardly ever limited access to new resources for the foreigners. From the strategic point of view, this decision should have certain limitations for that the ownership of the land which is only lent to foreign companies (Index of Economic Freedom, 2011) does not have such a serious meaning in comparison to the access granted to the country’s or governmental resources. On the basis of previous examples, it becomes obvious that the Chinese investors would use all the resources they can obtain, and the efficiency of these resources would serve them rather than the country.
In order to protect the investors, the Tanzanian government was responsible to introduce changes in the laws in the way that would allow greater confidence and the residence security (The Economist Intelligence Unit Limited, 2007). As Lee (2009) found out, Chinese employers sometimes infringe upon the rights of the local workers, but at the moment it seems like the Tanzanian government would better favour the position of investor rather than the local inhabitants.
Distribution of investments. The problem that the Tanzanian government met on the way to the initialization of the new foreign direct investments is their distribution within the industrial fields in the country. According to the government, agriculture should be the most attractive field of investment because it accounts for almost half of country’s GDP and is tightly connected to other industries. However, the inflows in this particular field are thought to be not sufficient for it to function adequately and generate necessary profits (The Economist Intelligence Unit Limited, 2007). The reason for that is the deficient number of investors aiming to put the capital into the agriculture business. On the other hand, mining industry, which accounts only for two to three percent of GDP in Tanzania and does not have strong connection to other industries in the country generates higher profits and does not lack the foreign capital. The possible reason for that is the power of business selection by the Chinese investors. Tanzania is the third main exporter of natural resources in China, that’s why the interest around this type of activity is much higher than the one in the agricultural sector. Once again this proves that the Chinese investors gain some sort of indirect control over Tanzania.
The practice and experience, which Tanzania gained over the past decades when collaborating with foreign investors, did not teach the government that the procedures associated with business activities should be less complicated and more affordable to the general investors and entrepreneurs. In the last years, Tanzania lost its position in the rating of economic freedom (Index of Economic Freedom, 2011), and one of the reasons for that is certainly the complexity of many operations performed by the government. Marandu (2004, p. 381) makes a conclusion that the licensing procedures are not clear, a part of provisions is hidden, and restriction take place. Therefore, the licensing procedures cannot be called enough transparent, and such non-transparency is observed as an obstacle in entering the market of Tanzania. So I suppose that even with the incredibly huge investments from China in different fields of Tanzanian development, there is no positive effect for the separate governmental bodies and no special impact on the order in the political and legislative units.
The future prospects
Should we discuss the interest of China in Tanzania further, I would suggest that the primary goal China pursues is the development and formation of the powerful Chinese nation. One can compare the economical indicators of other African countries and make a guess why the economy of Tanzania is second largest in east Africa (Reuters Africa, 2011). The best way to evaluate the effect of the investment is to calculate ROI, the return on investment coefficient. I will not perform this in this research for that most of the necessary input data is insufficient. However, what I show here is the proof of the Tanzanian attractiveness due to certain indicators and parameters, which comprise the reverse dependency of China on Tanzania, which is surely much less significant than the original dependency of Tanzania on China. For the last time, many politicians and economists all around the world pose a relevant question: will the countries exporters of most applicable natural resources be as significant at the international arena after the resources will be depleted? This is also a direct concern for Tanzania, which makes the most profit in mining, agriculture and tourism. With the development of infrastructure and services, the latter two sectors can become more prosperous than ever but it is still doubtful whether the new revenue can cover the depletion of natural resources if this takes place. Will China treat Tanzania as friendly as it does nowadays? Yet these are the questions with no real answers but one of the possible scenarios is quite obvious – investors having nothing to invest in will leave. In my humble opinion, the economic effect of losing investors is as considerable as the economic effect of gaining them. The issues to consider are the other types of economic activity, which can bring foreign capital that is not affected by the political orientations of the investor country.
In order to make the appropriate conclusion, a short summary of the gathered material is required. When analyzing the effects of how the foreign direct investment capital from China influenced the economic development of Tanzania, one of the fastest developing countries in the African continent, the main emphasis should be on what has changed in the country in the past decade and what it meant for Tanzania in terms of external and internal policies.
Chinese have brought not only products, technology, and knowledge to the country – they brought the belief that Tanzania can be a better place to live and operate the business in. And they proved it with their own examples by opening the production sites, expanding into mining, building public institutions, etc. The economic effects of the Chinese investments are associated not only with the economy of Tanzania but also with their impact on the different spheres of life and activity in the country. In other words, China allowed Tanzania to uncover its potential and pushed it towards comprehensive development. The Chinese investments and investor companies that started local business in Tanzania made a huge contribution to the growth of economic and industrial sectors in the country and proved that it is possible to gain profits not only from the main country’s activity – agriculture. Agriculture is known to be a seasonal business depending much on the weather and climatic conditions. Many industries expanded by Chinese are full-value sectors, which depend mostly on governmental regulations.
On the other hand, Chinese could not introduce only positive effects. The economic development touched the whole spheres of life and showed the gaps in communication between investors and local population, excessive ambitions of the foreign business owners, and even the dominance of foreign giants over the established regime in the country. The Chinese approach seems to be very straightforward in the relation to local competition, work force and country’s natural resources. All this presents the evidence of pursuing exclusively own economic interests by any means and neglecting the host country perspective to certain extent. This approach does not seem to be endorsed from the ethical and political perspective.
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