Bagamoyo port joint venture a turn for the better

07Dec 2017
Editor
The Guardian
Bagamoyo port joint venture a turn for the better

INDUSTRIES, Trade and Investment minister Charles Mwijage has formally announced the start of implementation of the Bagamoyo port project next month, after the government finalised a joint venture accord with a number of foreign companies.

The key venture partner is China Merchant Holdings International (CMHI) and another partner is State General Reserve Fund (SGRF) of Oman, finalised after a lengthy process of negotiations where the joint venture format was scarcely to the liking of officialdom here. We usually prefer soft loans for projects.

 

There is something positive about the conclusion of this project, in the fact that it legitimises joint ventures on an equity basis where management and profit realisation is factored into the project financing structure. Until now, or perhaps until quite recently, such a situation was deemed unacceptable, usually known by the noxious tag of ‘conditionality,’ which means impositions from outside that make no economic sense.  We are used to think on the lines of multilateral loan premises where soft loans are provided over a long period, to just change sources.

 

This contract, while on the basis of reality it is just right on time, as until recently it was deemed enough to enhance efficiency of the port of Dar es Salaam, is in reality part of the long story of underdevelopment. The idea that foreign interests own shares in vital strategic facilities has always been anathema to security thinking, and pressures to strike a balance between public sector and private sector activity continue to be problematic in policy thinking. There are various projects that could have taken off earlier on joint venture basis but the mood was negative.

 

The question therefore is if this is a one-off joint venture with foreign firms or it is going to become habitual, and thus enable more pending projects to move forward. On the basis of recent reports, the total debt has been climbing by a trillion shillings in a few months, which doesn’t mean it is unsustainable but rather that we should not expect that we shall continue getting such loans continuously, as the risk level for lenders rises with each major loan. Lending organisations have a list of priorities, and unsecured loans to state agencies isn’t likely to be a top priority.

 

Since plenty is being discussed at higher government levels about taking up some managerial and investment formulae from various countries, especially from the Far East, this should be a leaning moment. While this contract arises from central government, decentralisation implies ability to bring up joint ventures locally. It means control of resources needed to reach a contract is rationalised commercially.

While the cost of building the standard gauge railway in Tanzania is being touted as half of the cost cited in neighboring Kenya, the jury is still out on the methods of financing and quality of the final product. When a joint venture format is used, the standards applicable to the project as a whole a peer-reviewed, that each of the major contracting parties must be satisfied with project standards and ‘value for money.’ Loan-based projects have government and a contractor, just two partners.

 

The state has leverage in loan projects, but misses wide ranging synergies that come with joint ventures. Work that could be entrusted professionally to say a merchant shipping firm in China or a port-building concern in the Middle East is placed under NASAC or SUMATRA, where the two scarcely have the same capacities. Joint ventures must gradually get accepted, to lessen errors, losses.

 

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