Tanzania Railway Deal

Istanbul firm to build African railway

The recently announced deal came right after Turkish President Erdoğan’s visit to three African countries, Tanzania, Mozambique, and Madagascar, in January 2017.

His government’s official demand for a Turkish export credit facility for the railroad construction marks a strategic turning point from the usual PPP model in the region, which has been heavily dominated by Chinese financing and contracting. Yapı Merkezi had already successfully won railroad projects in Ethiopia. It is also the constructor of the almost-completed Eurasia Tunnel in Istanbul, which will connect Europe and Asia via an underwater road exclusively designed for the metropolis’ intense traffic.

Tanzania’s new development strategy is based on the goal of becoming a middle-income economy by 2025, a vision which is supported by the World Bank. The government sees the manufacturing sector as the most important catalyst for achieving its industrialization objective, which will inevitably be driven by public-private partnerships (PPPs) for energy investments and the creation of a broader integrated transport infrastructure to connect its Indian Ocean ports to Uganda, Rwanda, Burundi, and the DRC. Anticipating a huge increase in railroad passenger volume (77% growth from 2015 to 2016), the country had already begun upgrading its existing railway network in 2013 to match international standard gauges and achieve harmonization with networks across central and southern Africa.

The recently announced deal came right after Turkish President Erdoğan’s visit to three African countries, Tanzania, Mozambique, and Madagascar, in January 2017. This was only the latest of his numerous visits to African countries as part of the AKP government’s broader strategy to increase involvement in the continent. This approach was intensified after 2005, a year Turkey declared to be the “Year of Africa,” and has been continued through President Erdoğan’s persistent efforts to develop and solidify diplomatic, economic, and cultural relations with countries in Africa. However, Turkey’s main obstacles in this endeavor include the long-established dominance of China in continental infrastructure projects and the influence of the outlawed Turkish Gülen movement. Once a recognized religious body with private schools across the world, most notably in Africa, the Gülen group is now designated as a terrorist organization, and was allegedly involved in the July 2016 coup attempt in Turkey.

Nevertheless, Turkish trade and investment in African countries is constantly on the rise. Turkish contracts over the past 30 years have amounted to a total of USD55 billion, while FDI has reached USD6.2 billion, almost half of which has been directed to Ethiopia. These numbers are still relatively low compared to Turkey’s trade and business activities in other continents, but the slowing down in contracting activities in the Middle East, coupled with Turkey’s increasingly recognized image as a trusted strategic partner could eventually bear fruit. In fact, Erdoğan’s strategy of playing the role of benevolent older brother, in contrast with the negative association of European competitors and their colonial pasts, may prove to work in a region which once exalted the Turkish War of Independence against European occupation following World War I.

However, the current turmoil in the Turkish economy and the recent devaluation of the Turkish lira against foreign currencies will make it more difficult to replace financing schemes from other investor nations, essential tools for paving the way for increased business presence in these developing countries.

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