Economic Effects of China's Investment in Tanzania

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TABLE OF CONTENTS

I: INTRODUCTION1

1.Background1

2.China economic perspective2

3.Tanzania economic perspective3

II: ECONOMIC EFFECTS OF CHINESE INVESTMENTS6

1.Industrial development6

a)Positive economic effects6

b)Negative economic effects7

2.Agriculture and Rural Business Activity11

a)Positive economic effects11

b)Negative economic effects12

3.Internal Effects14

III: POLITICAL FACTORS16

1.Obstacles for Investing16

2.Tanzania Investment Perspective16

3.China Investor Perspectives17

4.Local Investment Relationships17

a)Economic Factors17

b)Social Factors20

5.Dependency on Chinese Investments23

a)Technological factors23

i.Infrastructure23

ii.Power Supply24

iii.Mining25

iv.Urbanization26

b)Environmental Factors27

c)Legal Factors28

i.Trade Barriers and Privatization28

ii.Distribution of Investments29

IV: THE FUTURE PROSPECTS31

V: CONCLUSION32

VI: REFERENCES35

I: INTRODUCTION

Background

As identified by Portelli and Narula (2006, p. 60), foreign direct investment flows play an important role in the development of the country allowing the country to restructure technologically and economically. The main benefits of such investments are liberalization of economy and switch to the private type of ownership of enterprises, namely the processes which are necessarily needed to be introduced in Tanzania for the last two decades. Portelli and Narula (2006) point out that the investments usually give an impetus to the industrial development by offering capital, tangible resources and know-how, and China is probably one of the most appropriate investors that is able to implement such type of changes in the country.

In 2010, Tanzania was ranked significantly low from the economical perspective reporting the per capita income in the country at around $350 (Kinda & Loening, 2010, p. 177). For the last decade, the economical situation in the country changed and was characterized with the improvement in many macroeconomic indicators, privatization, and increase of export activity.

According to Jakaya Kikwete, the President of Tanzania, the program of development for the country should incorporate the creation of favourable investment climate to ensure the improvement in economical and social spheres (Baffour, 2007, p. 54). The financial funds are to be invested in eight spheres dealing mostly with production, export trade, and resource allocation. The President himself promotes the necessity of investments identifying the spheres which are worth funding.

As Baffour (2007, p. 55) reports, each year, at least 100 new projects are launched with the help of investors, more than half of which were funded by either foreign enterprises or joint ventures.

China economic perspective

For the last years, China as the one of the world's fast developing countries made first attempts in investing into several African countries like Zambia, Nigeria, Egypt, Ethiopia, and Mauritius. In 2007, China surprised the world community by the attention paid to each country in Africa, financial funds invested, and servicemen employed (Gill & Reilly, 2007, p. 37). Primarily the government of China seeks profit in the countries, which are rich in natural resources and can help to minimize expenses in different sorts of production and mining. In return, China is ready to invest in the infrastructure and level of life in Africa. The government of China observes such investment expansion as a win-win situation that promotes economic benefits for the both sides (Gill & Reilly, 2007, p. 45). As Macdonald (2010) reports, the strategy is borrowed from Japan, which helped China with the first steps of development around 40 years ago. Tanzania can also take some lessons from the history of development in these countries like ...