Currency depreciation, unstable business environment impact investment: experts
Chinese investment in African countries like Tanzania can help local industries better integrate into the global value chain, but hurdles like depreciation of local currencies and a deteriorating business environment remain, experts said on Wednesday.
China and Tanzania share a long history of cooperation, tracing back to the 1960s, which also serves as bridge of friendship between China and Africa, Cheng Cheng, associate research fellow with the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Wednesday.
"However, cooperation between the two countries faced difficulties in the last two years, as the economic outlook of the East African nation was not as good as expected amid restructuring," he said.
Chinese Foreign Minister Wang Yi met Tanzanian Prime Minister Kassim Majaliwa in Dar es Salaam, capital of Tanzania, on Tuesday (Tanzanian time), and pledged to push forward cooperation between the two countries, according to the website of China's Ministry of Foreign Affairs. Tanzania is willing to work with China and Zambia to revitalize the Tanzania-Zambia Railway and to let China play a greater role in its development, according to the website.
At least 200 factories are planned to launch in the country within the next three years under China-Tanzania cooperation, creating 200,000 jobs, Mindi Kasiga, head of communications in the Ministry of Foreign Affairs and East African Cooperation, was quoted as saying by local online news site dailynews.co.tz on Friday.
"Minister Wang's visit turned some outcomes of the Johannesburg Summit into concrete result," Cheng said.
As an important outcome of the Johannesburg Summit of the Forum on China-Africa Cooperation in December 2015, the China-Africa Cooperation Johannesburg Action Plan (2016-18) outlines cooperation in various sectors such as agriculture and infrastructure.
China is Tanzania's largest trading partner, according to a November 2015 post on the website of the Economic and Commercial Representation of China in Tanzania. Total trade volume between the two nations hit a record high of $4.32 billion in 2014 and reached $2.31 billion in the first half of 2015, which is the latest data available.
As a follow-up to the summit, cooperation between China and African countries is evolving from government- to market-driven, from merchandise trade to capacity and processing trade and from contractor model to integration of investment, installation and operation, which will change Chinese companies' way of investing and operating business in Africa, Cheng noted.
"The market-driven business will help allocate resources. The major player in investing in Africa should be companies instead of governments," he said.
Challenges remain
Although reforms set by Tanzania President John Magufuli have been taking shape and have renewed the economic outlook of the country, the depreciation of the Tanzanian shilling has weighed on business, Cheng noted.
The depreciation of the currency creates uncertainty for trade and business, a representative from a Chinese company invested in Tanzania, who prefers not to be identified, told the Global Times on Wednesday night.
Other African countries have been dealing with slowing economic growth, which impacted Chinese investments through shrinking profits or with tightened restrictions on foreign currencies, said He Wenping, a research fellow at the Institute of West-Asian and African Studies, Chinese Academy of Social Sciences.
The major reason behind the sluggish economic growth in Africa is that countries are seen as sources of raw materials, and have not taken part in the global value chain, said Cheng.
"China has been pushing industrial capacity cooperation with Africa in an effort to help integrate local industries into the chain, which is fundamentally different from the cooperation model between Africa and Western countries," he said, noting that this also requires continuous improvements in the local business environment.
In addition to paving a way for further development of trade, African countries should work more on enhancing intercontinental convenience. For example, figuring out favorable tariff policies between countries, He noted. "There are limitations now, which hinder the economic growth of the continent as a whole," He added.
