Badly Needed Port Investment Provides Upside
BMI View: Chinese investment in a new Tanzanian port both highlights the need for new ports in East Africa in light of the massive demand levied on current infrastructure and the leading role China continues to play in developing the region. Infrastructure will continue to drive construction growth in Tanzania off the back of China's commitment to invest US$20bn in Africa over the next three years, of which as an export route for many African countries, Tanzania will likely see a large portion of.
China's dominance in East African infrastructure development continues with the announcement that China Merchants Holdings (International) Co Ltd has signed a framework agreement with the Tanzanian authorities to develop a new port in the town of Bagamoyo, some 75km north of the country's commercial capital Dar es Salaam. The development, worth an estimated US$10bn will see a new port, export processing zone and interlinking rail and road infrastructure built in an attempt to relieve some of the pressure on the heavily congested port of Dar es Salaam. Construction is believed to be scheduled for the beginning of 2015 after financial backing for the project is negotiated with the Chinese government.
The announcement of China Merchants Holding's involvement in the project comes off the back of Chinese President Xi Jinping's recent visit to Tanzania, when the project to build a new major port at Bagamoyo was announced. During the visit, Xi Jinping reaffirmed China's pledge of US$20bn in loans to Africa over the next three years, which is in line with our view for the development of infrastructure in East Africa ( see 'China Keeps Infrastructure Aspirations Alive', 26 April).
Costly Under Capacity
The Dar es Salaam port handles $15 billion worth of goods annually, equivalent to 60 per cent of Tanzania's GDP in 2012, with the overall volume handled by Dar es Salaam port jumping 20 percent between July 2012 and February 2013 to 8.314 million tonnes of cargo, according to the Tanzania Ports Authority.
Such demand has led the World Bank to publish a report stating that the under capacity issues at Dar es Salaam, which is East Africa's second busiest port after Mombassa in Kenya, costs Tanzania up to US$1.8bn a year in lost revenue due to delays. According to Tanzania's ambassador to China, Philip Marmo, the new Bagamoyo port will be able to handle 20mn containers a year, far surpassing the current top port in Africa - Durban in South Africa. In addition, a new port has been proposed at Tanga, located in the north of Tanzania. Whilst the new Bagamoyo port project has progressed further at this stage, the realisation of either port would be a boon for Tanzania and the wider, helping to alleviate pressure on the two major ports currently serving the region, both of which are perennially congested and over-burdened.
|East African Exports Reliant On Two Major Ports|
|Dar Es Salaam And Mombasa Throughput, 2008-2011 (TEUs)|
BMI's Shipping analysts have long been highlighting the need for port investment in East Africa, specifically due to huge demand in Kenya and Tanzania as the main export routes for landlocked countries such as Democratic Republic of the Congo, Zambia, Rwanda, Malawi, Burundi and Uganda. As such, and in conjunction with the commitment of Chinese funding for the foreseeable future, we are positive on the likelihood of the port developments to be realised.
|Infrastructure Development Provides Growth|
|Tanzania Construction Industry Value (TZSbn) and Real Growth (% year-on-year)|
Port Infrastructure Integration Driving Growth
We have noted the trend for the East African Community to direct their infrastructure development towards better integration, with a view to better stimulate economic growth in the region. In line with this goal, by providing export opportunities, port developments in Kenya and Tanzania have been a key element in this integration plan and have so far provided some of the largest planned projects.
Most notably, the Chinese Communications Construction Company (CCCC) and related companies are participating in the development not only of the current primary port of Mombasa, but also in the Lamu mega project to the north. In 2011 CCCC, through its China Road and Bridge Corporation subsidiary, signed a deal to build a new container terminal at Mombasa for US$66.7mn. Furthermore, it was announced in mid-April 2013 that CCCC had won a tender to build the first three berths at Kenya's mega port project, at Lamu, for US$484mn. The new facility, which will cost US$5.3bn, will cover 700 acres and will include a 10-berth container terminal, three bulk cargo terminals and an oil terminal.
The development of interconnected infrastructure in the region is one of the strongest growth driver's for Tanzania's construction industry. We are currently forecasting that Tanzania's construction industry will grow in real terms by an average 4.2% year-on-year over our medium term forecast period from 2013 to 2017. The newly announced Bagamoyo port development certainly provides upside to that forecast, as does the potential development at Tanga, but we refrain from pricing them in until construction phases draw closer, as project of this size often are severely delayed in Africa.