China Eximbank agrees in principle to provide RMB 100 million loan to Tanzania-China Friendship Textile Company for Technical Transformation and Equipment Upgrade Project (Linked to Project ID#60765)

On May 14, 2002, the Chinese and the Government of Tanzania signed a framework agreement in which China Eximbank agreed in principle to provide an RMB 100 million concessional 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 the Technical Transformation and Equipment Upgrade Project. The agreement stipulated that the loan would carry a maturity of 15 years and a 2% interest rate. The Chinese government also agreed to make the interest payments directly to China Eximbank instead of the Government of Tanzania, effectively making this an interest-free loan. However, it is unclear whether a final financing agreement was ever signed or whether any funds were ever disbursed. The purpose of the Technical Transformation and Equipment Upgrade Project was the replace older tools and materials used in the textile plant. According to Bungaya Dughangw Mayo of Mkwawa University, '[I]t was initially agreed that all 162 machines in the spinning mill II to be removed and disposed in the year 2006 and to install new modern machines. However, that plan has never been implemented and the place has been turned into a go-down. On November 1, 2011, members of the Parliamentary Committee on Trade and Industry toured FTC and described what they saw as “deliberate sabotage”. The [Chinese] investor was allegedly reported to be dismantling the machinery and was selling it as a scrap metal. It further pointed out that the management had failed to explain how it spent the $27 million that was advanced by the government to renovate the factory. After touring the factory premises, one of the MPs, Ms Chiku Abwao said, “from what we have observed, the current investor has invested nothing. A select committee should be formed to investigate the matter."' 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 Chinese project title is 技术改造和设备更新项目. 2. In 2013, China Eximbank issued an additional RMB 217.5 million loan to this joint venture (as captured via Project ID#60765).

Number of official sources

2

Number of total sources

11