China Eximbank provides RMB 217.5 million loan to Tanzania-China Friendship Textile Company for unspecified purposes (Linked to Project ID#68400)

According to a 2014 disclosure by Tanzania's Ministry of Finance, China Eximbank issued an RMB 217.5 million loan to the Tanzania-China Friendship Textile Company (FTC or 坦桑尼亚－中国合资友谊纺织有限公司) -- a special purpose vehicle and joint venture of the Tanzanian Government (49%) and an enterprise from the People’s Republic of China (51%) -- for unspecified purposes (as captured via Project ID#60765). The borrowing terms of the loan are unknown. However, it is known that the Government of Tanzania provided a sovereign guarantee in support of the loan. It is also known that, as of June 30, 2017, FTC had defaulted on its outstanding loan repayment obligations (TZS 36,583,497,775.58) to China Eximbank, effectively shifting responsibility for loan repayment to the Government of Tanzania's Ministry of Finance. Tanzania–China Friendship Textile Company Ltd -- previously called Urafiki Textile Mills Co Ltd -- is a vertically integrated company involved in spinning, weaving, printing and textile make-up located along Morogoro Road in Ubungo industrial area. Since 1996, the company has been owned as a joint venture between the Tanzanian Government (49%) and an enterprise from the People’s Republic of China (51%). The majority shareholder appoints the general manager while the minority shareholder appoints the deputy manager. Key functional units are staffed in the same way: the majority shareholder appoints the manager and the minority shareholder appoints the deputy manager. The company’s board of directors has five members, three of whom are Chinese and two of whom are Tanzanian. URAFIKI was built by the Chinese in 1968 following a request by the first president of Tanzania, Julius K. Nyerere. It was the first plant built in Tanzania using Chinese aid and was the country’s largest textile mill at the time. The company spins local cotton to make yarns, which are then made into fabrics and a limited range of home textiles. It employs about 1,200 workers. The two main products are types of cotton fabric: khanga and kitenge. Kanga accounts for around 90% of total production. It also produces a small volume of bed linen and curtains. The company stopped production between August 2011 and June 2012 due to a lack of available cotton. In 2016, Tanzania-China Friendship Textile Company was heavily indebted and reliant on lending from Chinese Eximbank for its continuing operations. In June 2018, Tanzania’s Prime Minister, Kassim Majaliwa, toured the factory and indicated that '[w]e are not pleased with what is going on at this factory. [...] If it is impossible to rectify the situation, let’s dissolve the venture and look for another partner. … We want answers to where the money went, the money borrowed from the Exim Bank of China. … It is apparent that the money never came to Tanzania.' According to a 2019 SAIS-CARI publication, the joint venture's 'financial situation has been deteriorating since the 2000s, owing to many factors. Market factor changes including the depreciation of the Tanzanian shilling (tzs), which increased Urafiki’s operating costs and in turn impacted the repayment of Chinese bank loans and interest. In addition, Urafiki was sued by the local labor union and lost the case in 2015; as a result, Urafiki was forced to pay 4 billion tzs (about US$ 2 million) in compensation to its workers, which as of this research was still being disbursed. Between 2005 and 2017, labor tensions and occasional violence has resulted in strikes, undermining Urafiki’s productivity. As of January 2018, Urafiki suspended production and is currently awaiting restructuring plans to be agreed upon by the two governments.' According to Bungaya Dughangw Mayo of Mkwawa University, 'the Tanzanian government prepared a proposal in 2018 for the divestiture of FTC with three options. The first option was based on conversion of debt into equity. If implemented, the shareholding structure between Tanzania and the Chinese investor would have been 67% and 33% respectively. The second option was conversion of debt and accumulated losses in which Tanzania would have owned 73% of shares while Chinese investor would have remained with 27%. The third option was to convert debt, accumulated losses and the additional loan of RMB Yuan 5 million received by Changzhou Office. If implemented, this approach would bring 72% of shares on the part of the government and [28% of shares] for Chinese investor. In March 2019, the two parties held a meeting in Dodoma to discuss the government’s proposal for the divestiture of FTC. The Tanzanian government pressed for removal of the Chinese investor, but the Chinese investor proposed replacement of the investor with another Chinese investor. If this proposal were to be agreed upon, it would have been just like the replacement which was made in 2003 in which the [FTC] remained in the hands of the Chinese but a new investor took over the company. The Dodoma meeting ended without a consensus. Oral sources indicate that since then no measures have been taken following the outbreak of Covid-19 in 2020.'

Additional details

1. The face value of the loan and the provision of a sovereign guarantee are identified in Tanzania's Ministry of Finance 'Consolidated Financial Statements for the Year Ended 30th June 2014' (accessible via https://web.archive.org/web/20171215155711/http://www.mof.go.tz/mofdocs/msemaji/Conso_with_Audit_Opinion-Now.pdf). 2. According to a 2019 SAIS-CARI publication, the proceeds of the loan were likely used to help the joint venture pay off debts and continue operations. This issue warrants further investigation. 3. According a 2022 publication by Bungaya Dughangw Mayo of Mkwawa University, '[t]he Tanzania-China Friendship Textile Mill (FTM) was established by using an interest-free loan of 50 million shillings from the Government of the People’s Republic of China and an equity capital of 10 million shillings which was provided by the Government of Tanzania through the National Development Corporation (NDC). The foundation stone for the construction of FTM was laid by the country’s first President Julius K. Nyerere on July 29, 1966 and the construction of the building and erection of the machinery was completed within eighteen months. On July 6, 1968 the mill went into commercial production with an annual production capacity of 24 million square metres and 1,000 tonnes of yarn. With the trade mark of “Urafiki” and freedom torch on manufactured clothes, the Tanzania-China Friendship Textile Mill (FTM) was named to symbolise the friendship between the two countries.' The same publication notes that 'on June 21st, 1990, Tanzania and China signed an agreement on Economic and technical cooperation in Peking in which China agreed to provide an interest-free loan of RMB Yuan 50,000,000 (equivalent to $8.5 million) to FTM for a rehabilitation programme within five years from 1st July, 1990 to 30th June, 1995.75 The rehabilitation was an outcome of consultations between the two countries on best approach to modernise the mill. In this agreement, the government of China agreed to help the government of the United Republic of Tanzania rehabilitate the equipment of the Friendship Textile Mill. According to the agreement, the rehabilitation was expected to cover three main areas. In the first place, it covered replacement of equipment for twenty thousand spindles in the spinning section. Second, it was aimed to provide spare parts for overall repair of the spinning, weaving and printing-dyeing equipment, and appropriate maintenance of the public utilities of boilers, refrigeration and air conditioning. Furthermore, it aimed to supply the maintenance equipment and tools to raise the capacity of maintenance. According to the implementation contract signed on 8th March, 1992, the loan was not supposed to be provided in monetary form, but rather in the form of machineries, spare parts and expatriates technical personnel. Regarding the latter, the Chinese government was obliged to dispatch fifty engineering and technical personnel to come to Tanzania to organise the implementation of the project. [...] The Tanzanian government was expected to make repayment of the loan in ten equal annual instalments over a period of ten years, from 1st July, 2000 to 30th June, 2010. However, oral sources from the mill indicate that out of the ten instalments, it was only one or two instalments that were made by the Tanzania government. The rest of the loan reportedly remained unpaid to date.' 4. China Eximbank also agreed to provide an RMB 100 million loan to the Tanzania-China Friendship Textile Company in 2002 (as captured via Project ID#68400). 5. The RMB 217.5 million China Eximbank loan is not included in the database of Chinese loan commitments that SAIS-CARI released in 2020 and re-released in 2021. Nor is it included it in the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020.

Number of official sources

5

Number of total sources

16